Fiscal cliff tax law expands Roth conversions for qualified retirement plans

February 18, 2013 Written by

The recently enacted fiscal cliff legislation (the American Taxpayer Relief Act of 2012) removes many of the limitations on making a qualified rollover from a pre-tax account held within a qualified deferral plan to a Roth account within th…e same plan. Under prior law, qualified deferral plans could allow participants to convert their pretax accounts to Roth accounts within the same plan, but only for money the participant otherwise had a right to
take out of the plan due to a permitted distributable event (i.e., the participant has reached age 59½ or separated from service). The new law allows any amount in a non-Roth account to be converted to a Roth account in the same plan, regardless of whether the amount is distributable.

Converted amounts are subject to regular income tax. If a participant elects an in-plan rollover, he or she cannot later “unwind” Roth rollover and return the funds to the pre-tax account as can be done to rollovers to Roth IRA’s for a specified period through a recharacterization.

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Written by: Doug Rodrigues