401K ROTH
If a participant has money in a regular 401k can he convert to a 401K Roth within the plan in 2010? I realize he can elect new deferrals to be to ROTH 401k but the old 401k pre tax money can that be converted simular to an IRA conversion?
Chuck
Permalink Submitted by Charles Hackett on Thu, 2009-12-10 23:10
Chuck,
I just ran into this, and found that the answer is, NO. Participants can convert their traditional 401k assets to a Roth IRA, but only after a qualifying event. The reason I signed on was to ask, “why?” Could there be some nefarious plans in Washington in the years to come?
Permalink Submitted by Alan Spross on Fri, 2009-12-11 04:03
Behind the scenes in Washington, there is some interest in simplifing the current maze of rules that currently contain some major inconsistencies. Probably the most infamous is the inability of a non spouse IRA beneficiary to do a rollover. With respect to this question, there could be some future changes, but the biggest hurdle is probably that plan sponsors may not want to get into the conversion/recharacterization business with it’s costs and complexity. You would have a big mess if a conversion took place and then the plan failed discrimination testing in a situation where excess contributions had been converted. There also exists the multiple conversion strategy where you retain only the winning conversions and recharacterize the rest. Plan sponsors would not like this, but there could be compromises and converting within a plan COULD become possible at some point.
Permalink Submitted by charles lore on Sat, 2009-12-12 16:35
THanks Alan for the insights.