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IRS Refines Rules for In-plan Roth Rollovers

On December 11, the Internal Revenue Service (IRS) issued guidance in the form of IRS Notice 2013-74 addressing expanded availability of in-plan Roth rollovers (conversions) within 401(k) and other plans. As you may recall, this provision was a late addition to the American Tax Payer Relief Act of 2012—passed at the end of last year—for plans beginning January 1, 2013.

For plan sponsors who offer a Roth option and wish to allow other types of contributions to be converted to Roth, the following outlines the contributions and their respective earnings that can be rolled over into a designated Roth account in the same plan:

• Elective deferrals in 401(k) and 403(b) plans
• Matching contributions
• Non-elective contributions
• Annual deferrals made to 457(b) plans

Amounts rolled over to a Roth account are subject to the distribution restrictions applicable to those amounts before the rollover. For example, if a 401(k) plan participant makes an in-plan Roth rollover of an amount from his or her pre-tax elective deferral account before age 59 1/2, the amount and applicable earnings may not be distributed before that age.