Greetings everyone and Happy Holidays! I am adding the Roth 401-k conversion option to 401-k’s that I currently manage, but there seems to be a problem with the way the Internal Revenue Code is written that limits “which” assets can be converted. I was under the assumption that you could convert all assets (deferrals, etc…) except for the company match which has to stay as a traditional 401-k balance. Apparently this is not the case…

I am now being told that the 401-k Roth conversion opportunity is recommended to be limited to the same parameters as the In-Service Distribution Rule, which is Age 59 1/2. The TPA told me they would allow down to age 40, but they don’t recommend it. ??? This makes no sense to me as the people who benefit from conversion the most (i.e. – younger people) don’t qualify. ❓

To further confuse the issue, they THEN told me the only assets that are eligible to convert are matching dollars, and profit sharing dollars. You cannot convert your deferrals or safe harbor contributions. This pretty much disallows 90% of most people’s balances. 😯

This all sounds horribly wrong, but I need to find the information to counter their opinion so I can force them to put the proper conversion opportunity in place. Anyone have definitive answers on these issues, or any links to a good article that addresses the limits?

Thanks!

Robert Collins