The Small Business Jobs Act of 2010 (H.R. 5297) passed the Senate last week and is expected to be signed into law by the President. As we mentioned in a previous post, there are a couple of retirement plan changes included in this bill. They include:
– Add a Roth option for 457(b) plans. This puts 457(b) plans for state and local governments on a similar footing with corporate 401(k) plans with regards to offering Roth deferrals.
– Allow eligible rollover distributions from a traditional 401(k) plan [or 403(b) or 457(b)] to be converted to Roth accounts within an employer’s current Roth 401(k) plan.
There is a great summary of these two provisions that was published by the American Benefits Council. It has lots of legal and tax details, as well as a couple of rough numerical examples. A couple of the points that they highlight:
– The Roth conversion is only available for “eligible rollover” distributions. In a traditional 401(k) plan, this generally means that the participant is at least age 59 ½ and eligible to take their money out of the plan. The conversion option in NOT generally intended for a young employee who just wants to convert their traditional 401(k) to a Roth 401(k).
– The taxes paid on the Roth conversion can be paid from non-plan dollars instead of with assets within the plan. Thus, a participant could convert $100,000 of traditional 401(k) into $100,000 of Roth 401(k), and just pay the tax on the $100,000 from their personal assets.
