A week after the IRS issued new rules for in-plan Roth rollovers in IRS Notice 2013-74, commentary on what that guidance means for advisors and their clients is beginning to appear.
Sidley Austin LLP notes that under this new guidance, plans have more power but also more responsibility:
• New power — plans now may limit how often in-plan Roth rollovers occur, as well as the kind of contributions that are eligible for such rollovers, and may discontinue rollover programs.
• New duties — Notice 2013-74 demands more of plans. When they determine their top-heavy status, plans must include in-plan Roth rollovers when they determine the present value of accrued benefits.
• New parameters — the guidance sets some new parameters. If an in-plan Roth rollover is the first contribution a participant makes to the Roth, the five-taxable-year participation period begins on the first day of the first taxable year in which a participant makes it. Also, any rollover amount found to have been an excess amount must be distributed from the Roth.
A technical update from Sungard Relius notes that the guidance allows participants to make in-plan Roth transfers of previously undistributable amounts. Sungard highlights the rules governing those transfers:
• they cannot involve nonvested amounts;
• protected distribution options open to participants before the transfer must remain available; and
• in-plan Roth transfer funds remain subject to distribution restrictions that existed before the transfer.
Also, Sungard notes that withholding does not apply to in-plan Roth transfers.
John Iekel is a writer/editor for ASPPA and its sister organizations, including NAPA Net.
