Fiscal Cliff Deal Includes in-Plan Roth Rollover

An obscure provision in the new law enacted to avoid the fiscal cliff will allow more employees to transfer their retirement savings from a Traditional to a Roth account within the same plan. Because distributions from Roth accounts are generally tax-free, they are often preferred to traditional plans. Section 902 of the American Taxpayer Relief Act of 2012 (pdf) – Amounts in Applicable Retirement Plans May be Transferred to Designated Roth Accounts Without Distribution – amends the Section 402A(c)(4) of the Internal Revenue Code addressing Roth contribution programs to allow individuals participating in 401k, 403b, or 457 plans to transfer funds to Roth 401k, 403b, or 457 accounts if those Roth programs are included in the retirement plans. Prior to this change, participants had to meet certain age and employment status requirements in order to do so. The new provisions make this option voluntary for plans, and apply to transfers made after December 31, 2012, in taxable years ending after that date.

Photo credit: Kirby Hamilton

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.