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IRS Issues Guidance on In-Plan Roth Rollovers

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December 2013

The IRS issued Notice 2013-74 which provides further guidance on in-plan rollovers of non-Roth amounts to Roth accounts. These types of in-plan Roth rollovers first became available to 401(k), 403(b), and governmental 457(b) plans under the Small Business Jobs Act of 2010. Initially, if a plan wished to offer this option, participants could choose to roll over non-Roth amounts to a Roth account in the same plan only if the participant was otherwise eligible to receive a distribution of the non-Roth amount (e.g., because the participant had terminated employment, reached age 59 ½, etc.).

This most recent guidance expands the types of non-Roth amounts that can be rolled over to a Roth account in the same plan. The IRS has made it clear that the following types of non-Roth amounts can be rolled over (converted, effectively) to a Roth account, even if the amounts are not otherwise eligible for distribution to the participant: (1) elective deferrals in a 401(k) or 403(b) plan, (2) employer matching and nonelective contributions that are vested, and (3) annual deferral amounts in a governmental 457(b) plan. The guidance also makes it clear that amounts rolled over to a Roth account in the same plan must remain subject to the same distribution restrictions that applied under the plan before the rollover.

Finally, it is worth mentioning that participants may only elect an in-plan Roth rollover if the plan itself allows for it. Plan sponsors should therefore consider whether they wish to offer this newly expanded option to participants. If a plan sponsor decides to offer this option to participants, the Notice provides that the plan must be amended by the end of the plan year in which the rollover option is first offered, or December 31, 2014 if later.

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