Guidance on In-Plan Roth Rollovers Issued

Among other clarifications, the Internal Revenue Service’s Notice 2013-74 notes that an in-plan Roth rollover of an otherwise nondistributable amount can be made only by direct rollover, which is not subject to tax withholding. But, the taxable amount is to be included in the participant’s income.

A qualified distribution from a designated Roth account is one due to death, disability or reaching age 59½ and must be after a five-year period. The Notice confirms that an in-plan Roth conversion qualifies as a first contribution that begins the five-year period, effective on the first day of the plan year in which the rollover is made.

Sponsors choosing to permit in-plan Roth rollovers must separately account for rollover amounts. Also, they will have to track contributions that have different withdrawal restrictions to ensure proper tax treatment and adherence to distribution restrictions (amounts rolled over and related earnings are subject to distribution rules that applied to those amounts prior to the in-plan Roth rollover).

Notice 2013-74 is at http://tinyurl.com/IRSNotice2013-74.

For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.

Kmotion, Inc., P.O. Box 1456, Tualatin, OR 97062; 877-306-5055; www.kmotion.com

© 2014 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.