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In-Plan Roth Rollovers

June 12, 2011 by admin

On November 26th, 2010, the IRS provided guidance relating to rollovers from 401(k) plans to designated Roth accounts in the same plan (“in-plan Roth rollovers”).  They used a Q&A format (20 questions) and below is a summary of three key questions.

Q-2.  What amounts are eligible for in-plan Roth rollovers?

A-2.  An amount is not eligible for an in-plan Roth rollover unless it satisfies the rules for distribution under the Code and is an eligible rollover distribution…Thus, in the case of a § 401(k) plan participant who has not had a severance from employment, an in-plan Roth rollover from the participant’s pre-tax elective deferral account is permitted to be made only if the participant has reached age 59 ½, has died or become disabled, or receives a qualified reservist distribution.

Q-8.  Are in-plan Roth direct rollovers subject to 20% mandatory withholding?

A-8.  No…However, a participant electing an in-plan Roth rollover may have to increase his or her withholding or make estimated tax payments to avoid an underpayment penalty.

Q-15.  Is a plan amendment providing for in-plan Roth rollovers in a § 401(k) plan required to be adopted by the end of the 2010 plan year?

A-15.  No…to give plan sponsors sufficient time to adopt plan amendments and thereby enable plan participants to make in-plan Roth rollovers before the end of the 2010 plan year, the Service is extending the deadline for adopting a plan amendment…to the later of the last day of the plan year in which the amendment is effective or December 31, 2011, provided that the amendment is effective as of the date the plan first operates in accordance with the amendment.

Please speak with your third party administrator and ERISA counsel if you would like to adopt this provision for 2010.

Filed Under: Advice, Blog, ERISA, IRS, Uncategorized

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Castle Rock Investment Company, formed in 2006, is an independent woman-owned SEC-registered investment adviser located in Castle Rock, Colorado. We specialize in individual financial plans and qualified service plans.

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