Recent Internal Revenue Service guidance clarifies a number of outstanding questions regarding in-plan conversions of non-Roth balances to Roth balances in 401(k), 403(b) and governmental 457(b) plans. In particular, the guidance confirms that converted balances are subject to the same distribution restrictions after the conversion as they were prior to it.
On Dec. 11, 2013, the IRS published Notice 2013-74 to provide guidance on converting non-Roth balances to Roth balances in 401(k), 403(b) and governmental 457(b) plan accounts. Although the IRS refers to these as in-plan Roth rollovers, we will utilize the more commonly used term in-plan Roth conversions in this summary. The new guidance clarifies rules relating to in-plan Roth conversions of both distributable and non-distributable account balances, along with new rules that apply to in-plan Roth conversions of all account balances. Plan sponsors who permit (or are considering permitting) in-plan Roth conversions should review the new guidance to make sure their plans are (or will be) legally compliant and include desired features, such as how often in-plan Roth conversions will be allowed and whether there will be any limitations on amounts that may be converted.
