posted 03/28/11 | Wealth Management
By: David L. Davidson, CPC, QPFC
Principal, Retirement Plan Services
You are likely aware individuals with traditional IRA accounts (pre-tax) can convert all or a portion of the pre-tax IRA account to a Roth Account. As a matter of fact, the income restrictions that limited who qualifies to convert traditional IRA accounts to Roth IRA accounts were lifted in 2010. This liberalization of the conversion rules led to a significant uptick in the number of IRA conversions and also led to additional discussions regarding what types of accounts should be eligible for Roth conversion.
These discussions ultimately led Congress to incorporate into the Small Business Jobs and Credit Act of 2010 a provision allowing in-plan Roth conversions for 401(k), 403(b), and governmental 457 plans. The ability to make such conversions was effective September 27, 2010 for 401(k) and 403(b) plans and January 1, 2011 for governmental 457 plans.
While the law allows for in-plan Roth conversions, the law does not require plan sponsors to incorporate this option into their retirement plans. There are many benefits to offering this provision under a retirement plan, but there are also necessary considerations that should be made before adopting this feature.
Over the last several months, we have assisted a number of our retirement plan sponsor clients with making the decision on whether to incorporate this type of provision. We are happy to share our insights on this matter with you. Just contact your relationship manager and he or she will be happy to put you in touch with one of our qualified retirement plan specialists.