My apologies for the length of this note.

Please take a quick look at the DOL’s proposed regulations for auto portability:

https://www.govinfo.gov/content/pkg/FR-2024-01-29/pdf/2024-01208.pdf

There is only a single mention of Roth – in the preamble/Supplementary Information, as part of background, on the first page, top of 3^rd column:

SUPPLEMENTARY INFORMATION:

1. Background Regarding Automatic Portability Transactions

 

Section 120 of the SECURE 2.0 Act of 2022 (SECURE 2.0 Act)1 amended Internal Revenue Code (Code) section 4975 to add a statutory prohibited transaction exemption for the receipt of fees and compensation by an ‘‘automatic portability provider’’ for services provided in connection with an ‘‘automatic portability transaction.’’ Specifically, Code section 4975(d)(25) provides prohibited transaction relief if the conditions set forth in Code section 4975(f)(12) are met. In the retirement plan context, portability refers to the process of transferring workers’ retirement savings from one tax- advantaged plan or account to another when their covered service with an employer terminates (e.g., from a traditional 401(k) plan account to a traditional individual retirement plan— such as an individual retirement account or annuity described in Code section 408(a) or (b) (IRA)—or from a Roth 401(k) plan account to a Roth IRA.  As described in more detail below, the term ‘‘automatic portability transaction’’ means a transaction in which mandatory distributions pursuant to Code section 401(a)(31)(B)(i) from an employer-sponsored retirement plan to an IRA established on behalf of an individual are subsequently transferred to an eligible employer-sponsored plan in which such individual is an active participant, …

Later, it defines Automatic Portability Transactions: :

2. Automatic Portability Transactions … A comprehensive automatic portability framework includes three key components. First, there is a ‘‘transfer- out’’ plan that initiates a mandatory distribution. Second, there is an IRA established in accordance with Code Section 401(a)(31)(B) (a Default IRA) to receive (via a rollover) and hold the distributed funds.11 Third, there is a ‘‘transfer-in’’ plan that receives the roll- in distribution from the Default IRA when an IRA owner is matched with an account in an eligible employer- sponsored plan at a new employer. 

The DOL regulations never mention a “direct transfer” of Roth assets (or any assets) from one 401k to another 401k.

So, I looked at SECURE 2.0 and did not see any change to the IRS’ stated position that Roth IRA assets cannot be rolled over into a Roth 401k.  See: https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

So, auto portability, as defined in the regulatory guidance, would fail with respect to Roth 401k assets – as money would never reach the subsequent employer’s plan. It would strand Roth 401k assets in a Roth IRA, in capital preservation investments.

Roth 401k assets that are involuntarily distributed (under $7,000) to a Roth IRA (as noted in the proposed regulations) cannot be subsequently transferred to the next employer-sponsored Roth 401k plan.

Do you agree? Am I missing something? Can you identify anything else at the IRS or the tax code or regulations that confirms that once in the Roth IRA, those Roth assets cannot be later rolled over to a Roth 401k?