SBJA and conversions of 401(k) balances to Roth 401(k)s
There still appears to be a lot of confusion on many aspects of this provision. I am reading conflicting opinions on which components of company plans are permitted to be converted. Assuming all the other requirements are met, can a plan be modified to allow in service distributions for employee deferrals for those below age 59.5? My understanding was that the 59.5 rule was a statutory one and that anyone below such age could not take an in service distribution, period. If I am correct, does this new provision within the SBJA pertain only to employer contributions, such as matches and profit sharing amounts for those under age 59.5? HELP!
Permalink Submitted by Alan Spross on Thu, 2010-10-21 18:23
See the attached article that deals with several questionable provisions on these conversions. Your questions are included in the mix:
http://www.ici.org/pdf/24611.pdf
Permalink Submitted by Michael Rubin on Mon, 2010-10-25 16:56
Unless I’m missing something I don’t see the issue being addressed in the attached??
Permalink Submitted by mk foss on Mon, 2010-10-25 18:43
There is/was a statutory provision that prevented 401(k) participants under age 59.5 from getting there deferrals back before a separation from service. I haven’t studied the new legislation enough to know if this was changed for purposes of a Roth conversion. Those under 59.5 could have access to earnings and employer match funds.
Permalink Submitted by Alan Spross on Mon, 2010-10-25 19:26
See “sources for in plan Roth conversions” in the prior link. This issue needs clarification with respect to the age of the participant, and the various segments of the plan balance that will be eligible. With all these unresolved issues, plus definite disadvantages such as inability to recharacterize and lack of ordering rules, there may be pitfalls for plan administrators to rush into adoption just to beat the year end deadline for the two year deferral.