By James A. Woehlke, Esq., CPA

COO / General Counsel, MBL Benefits Consulting Corp.

On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 2010, H.R. 5297. Sec. 2112 of the law, “Rollovers from Elective Deferral Plans to Designated Roth Accounts,” permits 401(k) and 403(b) plan participants to convert their pre-tax accounts into after-tax Roth accounts. The plan document must provide the option to participants. Plans without Roth features will need to be amended to include them.

As a general rule, contributions to Roth accounts are made with “after-tax” dollars, that is, there is no deferral for contributions, but withdrawals from the accounts occur without a tax impact. The income earned in a Roth account, therefore, ordinarily is never taxed.

Making the conversion from an after-tax account to a Roth account IS a taxable event; however, the early withdrawal penalty is not imposed. The law permits conversions occurring in 2010 to result in tax either (a) payable solely in 2010 or (b) spread equally over 2011 and 2012.

If you are interested in adding a Roth feature to a plan or a feature to permit in-plan conversions, please contact your MBL Benefits consultant.

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Additional Resources

From the Proskauer Rose law firm, http://www.proskauer.com/publications/client-alert/in-plan-conversions-under-the-small-business-jobs-act/

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