In-Plan Roth Conversion Rules Fleshed Out by Recent IRS Guidance

Section 401(k) and 403(b) plan sponsors may now allow certain participants to convert their accounts held under the plan to Roth accounts. This in-plan conversion will allow participants to include these amounts in gross income for federal tax purposes in the year of the conversion (subject to a special rule for 2010 conversions), rather than having to wait until the year in which the amounts are actually distributed from the plan. Previously, a participant who wanted to convert his or her account to a Roth account would have had to take a distribution from the plan and then roll the distribution over to another plan with a Roth feature, such as a Roth IRA, in order to accelerate taxation and allow future earnings to accumulate tax-free. This change, which was made by the Small Business Jobs Act of 2010 (Act) effective for distributions made after September 27, 2010, allows eligible participants to convert their qualified plan or 403(b) accounts to Roth accounts without