Obama Signs Small Jobs Bill Containing Roth Rollover Provisions

On Monday, President Obama signed into law the Small Business Jobs Act (H.R. 5297), (pdf) legislation that contains provisions allowing individuals to roll over certain retirement accounts into Roth accounts. Specifically, according to a summary (pdf) of the new law, the retirement provisions will do the following:

  • Allow Rollovers from Elective Deferral Plans to Roth Designated Accounts. The bill will allow 401(k), 403(b), and governmental 457(b) plans to permit participants to roll their pre-tax account balances into a Roth account. The amount of any pre-tax rollover will be considered taxable income. If the rollover is made in 2010, the participant can elect to pay the tax in 2011 and 2012. Plans will be able to allow these rollovers immediately upon enactment.
  • Permit Partial Annuitization of a Nonqualified Annuity Contract. The measure will allow holders of nonqualified annuities (annuity contracts held outside of a tax-qualified retirement plan or IRA) to elect to receive a portion of the contract in the form of a stream of annuity contracts, leaving the remainder of the contract to accumulate income on a tax-deferred basis.
  • Allow Participants in Governmental 457 Plans to Treat Elective Deferrals as Roth Contributions. Beginning in 2011, the bill will allow certain retirement savings plans sponsored by state and local governments (governmental 457(b) plans) to include Roth accounts, which are currently available only under 401(k) and 403(b) plans. Roth contibutions will also be available under the federal Thrift Savings Plan in 2011. Contributions to Roth accounts are made on an after-tax basis, but distributions of both principal and earnings are generally tax-free.

The Small Business Jobs Bill cleared the House of Representatives on September 23 by a vote of 237-187, a week after the Senate passed the measure 61-38.

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.