New IRS Guidance on Roth 401(k) Rollovers

A Roth 401(k) is a hybrid employer-sponsored retirement plan that combines elements of a traditional 401(k) plan with Roth IRA features. While a Roth 401(k) plan is not necessarily a new concept, the IRS has recently offered new guidance on rolling funds from a traditional 401(k) account to a Roth account within the same plan (IRS Notice 2013-74).

The Weaver newsletter article IRS Offers New Guidance on Roth 401(k) Rollover provides information on how a Roth 401(k) works and the new rules for in-plan rollovers. Example parameters include:

• The funds rolled over to an employee’s designated Roth account are subject to distribution restrictions in existence prior to the in-plan rollover.
• A rollover of an otherwise non-distributable amount is not subject to mandatory withholding nor does voluntary withholding apply.
• A plan amendment permitting in-plan Roth rollovers of otherwise non-distributable amounts must be adopted by the last day of the first plan year in which this discretionary amendment is effective.

View the newsletter article for a thorough list of these new rules. You may also view the IRS FAQ for more information in general about in-plan rollovers to Roth 401(k)s.