Tuesday, November 30, 2010

IRS Gives Additional Time for Roth Amendments and Lots of Other Roth Guidance

Note:  You can find my earlier blog post on the subject here:

In Notice 2010-84, the Internal Revenue Service provided lots of needed guidance on in-plan (withing a 401(k) plan) Roth conversions (converting traditional 401(k) money to Roth money). Probably the most important guidance extended the deadline for adopting conforming plan amendments until the close of the 2011 plan year. For companies that may have been struggling to get these amendments done in time, this is very good news.

You can find the text of the Notice here: http://benefitslink.com/IRS/notice2010-84.pdf

Here is a summary of some of the other key guidance contained in the Notice:

  • In order to be eligible to do an in-plan Roth conversion, a participant must be at least age 59 1/2, dead or disabled, or receive a qualified reservist distribution.
  • Plan loans are not considered new loans.
  • Spousal consent is not required.
  • Roth conversions may be allowed by a plan even if the plan does not allow in-service distributions. If you are a participant who is at least 59 1/2, this could be very valuable.
  • For 2010 conversions only, the participant can make an irrevocable election to not include that income for 2010 tax purposes, but split it evenly between his or her 2011 and 2012 tax years. This could be crucial for tax planning. Note, however, that employers will not withhold for in-plan Roth conversions. So, if you are doing a large in-plan conversion, you need to be careful to not under-withhold.

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