Roth conversion with 401(k) plan
Edit postDelete postReport this postReply with quoteConversion within 401(k) plan to Roth option
by MkLvllee » Fri Dec 03, 2010 11:38 am
Although not about an IRA, this is about a Roth conversion. Let me know if you can help.
My client is the owner of an S corporation with a 401(k) plan; the plan has been in existence for 9 years. He is a fiduciary and participant on the plan, controlling the plan and the plan documents. He is interested in introducing a Roth option to the plan and allowing new asset flows for himself and his participating employees into the Roth option. Can he and other participants also convert existing pre-tax 401(k) assets to the Roth option of the same plan? Will plan documents need to be amended to specifically allow for this? Do all 401(k) plans (with Roth availability) allow for this? I assume this action would be a taxable event similar to any other Roth conversion. Are there any other possible tax ramifications?
Permalink Submitted by Alan Spross on Fri, 2010-12-03 17:15
Attached is a link to IRS Notice 2010-84. Note Q 15 regarding an extension to file plan amendments to allow in plan conversions. Of course, the plan must first be amended to include the basic designated Roth option. Don’t know as there is time to get this done so that conversions could be done in 2010 and get the two year deferral.
Yes, this is a taxable event like any other Roth conversion. However, note that there is NO option to recharacterize these conversions once completed like there is with in a Roth IRA:
http://benefitslink.com/IRS/notice2010-84.pdf
Permalink Submitted by Martin Helmer on Fri, 2010-12-03 18:37
A calendar year plan need not be amended until 12/31/2011, while still having the Roth conversion option be effective in operation now.
In general, neither original plan documents nor subsequent amendments necessarily need to be filed with IRS. The filing is done for ‘assurance.’