In-Plan Roth Conversions

The IRS has provided welcome guidance, in the form of Notice 2010-84, relating to in-plan Roth conversions.  The Small Business Jobs Act of 2010 (P.L. 111-240) authorized in-plan distributions for purposes of converting money to Roth money (see “Roth Conversions” from the Highlights of the Small Business Jobs Act, October Benefit Beat).

Of particular importance, the Notice addresses the amendment issue.  Generally, a plan would have to be amended by the last day of the plan year in which the change takes effect, for changes of this nature.  This pronouncement states that a plan has until the later of the last day of the plan year in which the change takes effect, or December 31, 2011, for the amendment authorizing the Roth conversion to be adopted.  The amendment must be retroactive to the effective date of the change. 

This Notice also confirms that spousal consent is not needed for a Roth conversion.

Other Important Retirement Plan Reminders

• The Worker, Retiree, and Employer Recovery Act of 2008 (enacted 12/23/08, Public Law 110-458) requires plansto be amended by the end of 2011 to document the requirement minimum distribution provisions (see New Pension Relief Law, Benefit Beat, January 2009).
• The HEART Act requires plans to be amended by the last day of the 2010 plan year (December 31st for calendar year plans) to provide that certain military service counts for vesting purposes.  In addition, a plan participant who dies during military service is deemed to have returned to employment one day prior to the date of the death (see IRS Guidance: HEART Act, Benefit Beat, February, 2010).
• Plans that include employer securities must be amended to allow, at least quarterly, diversification into at least three other investment options (see “Employer Securities Diversification” from the September 2006 Benefit Beat, PPA: Pretty Powerful Act for Pension Protection?, and  Extension of Deadline to Adopt Certain Retirement Plan Amendments, Benefit Beat, January 2010).

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.