Dec 13, 2013

IRS Issues Long-Awaited Guidance on In-Plan Roth Rollovers

On December 11, 2013, the Internal Revenue Service (“IRS”) issued long-awaited guidance about in-plan Roth rollovers.  The American Taxpayer Relief Act of 2012 (“ATRA”) included a provision to allow in-plan Roth conversions of defined contribution retirement plan accounts (e.g., 401(k) plan accounts, etc.) that would otherwise not have been distributable without the usual income limitations.  Prior to ATRA, only amounts deemed distributable (e.g., upon attainment of age 59 ½) could be converted to Roth accounts.  The provision became effective January 1, 2013.  However, most plan sponsors have been awaiting guidance from the IRS prior to adding this new provision to their retirement plans because most third party administrators were unwilling to administer this new feature without additional IRS guidance.

Specifically, Notice 2013-74 (the “Notice”) provides that elective deferrals, matching contributions, and non-elective employer contributions (and the earnings thereon) may now be rolled over to a designated Roth account in the same plan even if such amounts were not otherwise distributable.  However, the amount rolled over (and the applicable earnings) must still remain subject to the distribution restrictions that were applicable before the in-plan Roth rollover amendment.  Employers that want to add this new provision to their retirement plans must amend their plans no later than December 31, 2014.

For more information regarding this new in-plan Roth rollover guidance, please contact your Executive Compensation and Employee Benefits Counsel at Smith, Gambrell & Russell.  

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