You are receiving this e-mail, because you or someone you know has provided your e-mail address to DWC Consultants, Inc.  We do not want to fill your inbox with e-mails you do not want, so please click SafeUnsubscribe at the bottom of this message if you would like to be removed from our mailing list.  Thank you.
DWC Digest
September 2010
Roth 401(k) Conversions Now Available
President Obama signed the Small Business Jobs and Credit Act of 2010 ("SBJCA") on September 28, 2010.  While not necessarily a pension law, the SBJCA does include one much-anticipated provision impacting 401(k) plans.  It allows 401(k) participants to convert a portion of their accounts from pre-tax to Roth without pulling the money out of the plan.
 
Highlights from the SBJCA
  • The plan must include a Roth deferral feature that is available for ongoing contributions in addition to Roth conversions.
  • Roth conversions are permitted only for account balances that are otherwise eligible for in-service distributions other than hardships.  The following list shows the earliest timeframes a plan can permit in-service distributions.
    • Elective Deferrals - Age 59½
    • Safe Harbor Contributions - Age 59½
    • Non Safe Harbor Contributions (Match/Nonelective) - 5 years of participation or 2 years of accumulation
    • Money Purchase/Target Benefit Contributions - Age 62
    • Employee Rollovers - Any time
  • Participants are subject to individual income tax on the amount converted, but the 10% early withdrawal penalty is waived.
  • Participants who convert in 2010 have the option to claim the additional income for tax purposes equally over the next 2 years.
Sponsors that wish to take advantage of this new feature will have to amend their plan documents, though the deadline is not yet clear.  Under normal IRS rules applicable to non-mandatory amendments, the amendment deadline for a 2010 implementation would be December 31, 2010; however, a Joint Committee on Taxation report hints that there might be an extended amendment period.
 
DWC Comments
  • Plan sponsors looking to allow Roth conversions this year should plan on a December 31st deadline until the IRS grants a formal extension.
  • Roth conversions can have significant tax implications, and each participant's situation is unique.  Anyone considering such a conversion should speak to their advisor for specific guidance.
  • Plan sponsors should speak to their recordkeeping service providers to determine the availability of this feature and whether any additional fees that may apply.
Please contact DWC for more information or if you would like to add this new feature to your plan.
About DWC Consultants, Inc.
DWC was founded in 1999 and has grown to provide employee benefit consulting services to nearly 1,000 clients nationwide.  We provide compliance and consulting services for employer-sponsored retirement programs. For more information and to learn how DWC can work with you or your clients, please call us at 651.204.2600 or visit our website at www.dwcconsultants.com.  For our take on current developments, click PozekOnPension on the menu bar.

Employee Benefit & ERISA Fiduciary Consultants