New Roth Opportunity for 401(k) Plans per Fiscal Cliff Deal
January 10, 2013
More plan participants may now take advantage of Roth provisions under the new arrangement
The recently passed fiscal cliff deal (officially known as the American Taxpayer Relief Act of 2012) includes a new rule that allows more people to convert money in their traditional 401(k) plan to a Roth 401(k) account in the hope of raising additional tax revenue. Doing so is called an "in-plan Roth rollover." Until now, if your plan was amended to allow for Roth conversion, only individuals eligible for a distribution (over 59½ or terminated from employment, etc.) could elect Roth. The new provision expands eligibility to everyone (including participants in 403(b)s, thrift savings and 457 plans). The Roth plan feature gives participants the option of paying taxes now on their retirement savings instead of when they withdraw money later from their accounts.
Please contact your relationship manager or plan administrator at P&A for more information on amending your plan document to allow in-plan Roth conversions.
Who may participate?
Under the new rules, a Roth conversion would be available to any 401(k) plan participant whose employer offers a Roth account and conversion.
What are the benefits?
Those who elect this conversion pay taxes on the balances transferred, but any future gains or withdrawals would be tax free.
Who may be a good fit?
If plan participants expect their tax rate to be the same or higher in retirement than it is now, they might be better off with a Roth 401(k). Roth 401(k)s may also be a helpful estate planning tool for those who wish to prepay the tax liability on retirement accounts they are leaving to heirs.