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Pension and Employee Benefits: Code, ERISA, & Regulations
This series provides an authoritative and comprehensive reference to the full text of benefits-related provisions of the Internal Revenue Code, the full text of ERISA, and related proposed and final regulations, as well as the official IRS and DOL preambles, and Committee Reports.
The IRS has posted to its website a description of the new rules on in-plan rollovers to designated Roth accounts under the Small Business Jobs Act of 2010 (P.L. 111-240). The Act authorizes 401(k) and 403(b) plans to allow participants to roll over pre-tax account balances into a designated Roth account within their plans effective for distributions after September 27, 2010.
Designated Roth accounts
Under the new law, employers may amend their 401(k) or 403(b) plans to allow participants to transfer an eligible rollover distribution (ERD) into their designated Roth account in the plan. The transfer must be of an ERD that is:
"A participant must be eligible to receive a plan distribution before he or she can take advantage of the new expanded Roth contribution and conversion rules," Brian Pinheiro, partner, Ballard Spahr LLP, Philadelphia, told CCH. Typically, individuals will be eligible because they have terminated employment or attained age 59 1/2, Pinheiro noted.
Income inclusion
A participant who rolls over an ERD must include any previously untaxed portion of the ERD in gross income. If an ERD is rolled over in 2010, the amount is included ratably in income in equal amounts over 2011 and 2012.
A participant can elect to include the entire taxable amount of the rollover in 2010 gross income, the IRS explained. An individual who elects to include the rolled over amount in his or her 2010 gross income may not revoke that election after the due date, including extensions, of his or her 2010 federal income tax return, the Service cautioned.
"Although it appears the IRS will provide a remedial amendment period for plan sponsors to amend their plans for Roth conversions, plan sponsors should decide now whether they will allow such conversions so that participants can take advantage of the 2010 special tax rules," Pinheiro noted.
Source: IRS website, October 1, 2010.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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