Recharacterize Roth 401k
I have a client that did not understand the ROTH 401k- he is in a 35% bracket thus we would have preferred to conntribute to a traditional 401k. Is there a proviso for recharacterization?
Thanks,
Jim
I have a client that did not understand the ROTH 401k- he is in a 35% bracket thus we would have preferred to conntribute to a traditional 401k. Is there a proviso for recharacterization?
Thanks,
Jim
Permalink Submitted by Alan Spross on Tue, 2008-03-11 19:50
Jim,
Unfortuneatly, no.
Once Roth 401(k) contributions are made, they
cannot be recharacterized later as traditional deferrals;
nor can traditional deferrals be recharacterized as Roth
401(k) contributions.
Sounds like the required employee Roth 401k educational material was ineffective in this case, and probably several others.
Damage control:
1) A plan must allow a minimum of one elective switch of contribution type per year. This is only on a day forward basis, however, but he should change his future contribution type ASAP.
2) If there happens to be an excess deferral overall for client, the plan options with respect to which type can be withdrawn first (including earnings) should be determined to see if the Roth part can come out first.
Bottom line, he is likely stuck with the taxes now, however if all the predictions of higher tax rates in the future come to pass, he will look back on this more positively.