In-Plan Roth Rollovers Notice 2013-74 expands the guidance provided in Notice 2010-84, explaining how in-plan Roth rollovers operate following the 2012 statutory change that allows all plan funds to be converted. The Evolution of In-Plan Roth Rollovers: -
2006: Roth 401(k) contributions were introduced by the Economic Growth and Tax Relief Reconciliation Act of 2001, for plan years starting after 12/31/05. -
2010-11: In-plan rollovers to Roth accounts were permitted by the Small Business Jobs Act of 2010, for distributions after 9/27/10. -
Notice 2010-84: provided guidance on in-plan Roth rollovers, including the limitation that the only amounts eligible for in-plan Roth rollovers were amounts that were immediately distributable (limiting the availability of this feature to terminated participants and participants at least age 59.5). -
2013: In-plan Roth rollover rules were liberalized by Congress in the American Taxpayer Relief Act of 2012, which added new subsection 402A(c)(4)(E). This legislative change expanded the availability of in-plan Roth rollovers by removing the limitation in Notice 2010-84 that the participant have reached age 59-1/2, or otherwise become eligible for a distribution. The expanded eligibility for in-plan Roth rollovers applies to transfers made after Dec. 31, 2012, in taxable years ending after that date. New Guidance: Notice 2013-74 amplifies earlier guidance and answers several common questions affecting plan sponsors: -
Only vested amounts can be rolled to the in-plan Roth account. -
In-plan Roth rollovers are only allowed if the plan document permits them. -
The plan document can direct which money types are available for in-plan Roth rollovers. -
The plan document can limit the frequency of in-plan Roth rollovers. -
No withholding will be applied to in-plan Roth rollovers. The employee making the in-plan Roth rollover owes taxes on the rollover amount and may need to increase his or her withholding or make estimated tax payments to avoid an underpayment penalty.
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