Internal Revenue Service has issued guidance on rollover activity for plan
sponsors on with Roth 401(k) features as part of their plan. The guidance
addresses rollovers, which were first allowed in 2013, by participants younger than retirement age.
part of the IRS guidelines explains that any rollover made before a participant
reaches age 59½ must be done directly from the qualified retirement plan account
to the IRA. Because distribution of funds is not allowed before that age, the
60-day rule that applies to older account holders does not apply.
sponsors have until December 31, 2014 to amend their plans to allow such
rollovers and this will extend the deadline to allow participants to allow
employees to defer salary into the Roth account.
advisory also covered:
- Plans may restrict the
types of contributions and balances eligible for in-plan Roth rollovers, such
as limiting rollovers to balances that are otherwise distributable. This
would avoid the burden of tracking distribution restrictions for some or all of
the Roth balances.
- Plan sponsors may
eliminate in-plan rollovers at any time, although the timing must not
discriminate in favor of highly compensated employees.
- Favorable tax treatment applies only to Roth distributions made after
five years from the date the Roth account was established. When the first
contribution made to an employee’s Roth account is an in-plan rollover, the
five-year clock applies and begins on the first day of the first taxable year
of the rollover.