In-Plan Roth Conversions
 On September 27, 2010 President Obama signed the Small Business Jobs and Credit Act of 2010 into law. One of the provisions which the Act permits is the conversion of 401(k) account balances to a Roth account within the retirement plan. This conversion is only available when there is a distributable event. For example, if a terminee chooses to leave his money in the plan, he can convert his account balance into a designated Roth account. In addition, the retirement plan must have a designated Roth source. This change is available starting with the 2010 retirement plan year. This provision is not required; however, if the retirement plan wants to allow for this conversion, it would require an amendment.
The IRS has yet to provide specific guidance on the rules and procedural issues relating to these in-plan Roth conversions. It is uncertain whether or not the income tax withholding will take place at conversion or if the participant will be allowed to pay the necessary income taxes with the individual’s income tax return. At this time, it appears that 2010 conversions would be eligible for the special tax treatment that applies to 2010 Roth IRA conversions. This special tax treatment allows the individual taxpayer a choice of recognizing the conversion in 2010 or spreading it out through 2011 and 2012.
As further guidance becomes available we will keep you informed. In the meantime, if you have any questions, please feel free to call Pat at 317-613-7841 or Jo-Ann at 317-613-7842.
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