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Additional Guidance on In-Plan Roth Rollovers

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Information about Additional Guidance on In-Plan Roth Rollovers
Business & Mgmt

Published on February 18, 2014

Author: OConnorDavies

Source: slideshare.net

Description

The Internal Revenue Service (“IRS”) issued Notice 2013-74 (the “Notice”) in December 2013 which provided further guidance on rollovers within a retirement plan to designated Roth accounts in the same plan [In-Plan Roth Rollovers, (“IRR”)]. The Notice addresses issues relating to IRRs in three parts: Part A addresses the application of Notice 2010-84 to the IRRs of otherwise non-distributable amounts allowed under the American Taxpayer Relief Act of 2012 (“ATRA”); Part B clarifies additional rules applicable to IRRs of otherwise non-distributable amounts allowed under ATRA; and Part C provides guidance on additional rules which are applicable to all IRRs.

Review this articles to learn more about inplan rollovers - O'Connor Davies - NY CPA Firm.
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January 2014 Employee Benefit Plans Considerations Additional Guidance on In-Plan Roth Rollovers Louis F. LiBrandi, Principal The Internal Revenue Service (“IRS”) issued Notice 2013-74 (the “Notice”) in December 2013 which provided further guidance on rollovers within a retirement plan to designated Roth accounts in the same plan [In-Plan Roth Rollovers, (“IRR”)]. The Notice addresses issues relating to IRRs in three parts: Part A addresses the application of Notice 2010-84 to the IRRs of otherwise non-distributable amounts allowed under the American Taxpayer Relief Act of 2012 (“ATRA”); Part B clarifies additional rules applicable to IRRs of otherwise nondistributable amounts allowed under ATRA; and Part C provides guidance on additional rules which are applicable to all IRRs. Louis F. LiBrandi Principal llibrandi@odpkf.com 212.286.2600 Background Plan sponsors have been waiting for details on rollovers within retirement plans to designated after-tax Roth accounts. ATRA had liberalized the rules governing in-plan transfers of pre-tax amounts into a Roth account. Significant modifications made by the Notice include: There is no longer a requirement that the participant be eligible for a distribution. Amounts rolled over (and applicable earnings) to a designated Roth account remain subject to the distribution restrictions that were applicable to the amount before the in-plan Roth rollover. Therefore, a 401(k) plan participant who has had a severance from employment makes an in-plan Roth rollover of an amount from the participant’s pre-tax elective deferral account prior to age 59½; that amount (and applicable earnings) may not be distributed from the plan prior to attainment of age 59½ or the occurrence of another permitted event for a 401(k) plan (e.g., death, disability, severance of employment, etc.). Withholding does not apply to an IRR of an otherwise nondistributable amount. Consideration by a participant electing an IRR may need to increase his/her tax withholding or make estimated tax payments to avoid an underpayment penalty. For purposes of the 5 taxable years holding period for a Roth account, the period begins on the first day of the first taxable year in which the participant makes the IRR. A revised Code §402(f) notice is not required for an IRR of an otherwise nondistributable amount.

Amendment Needed for Plan Contact: New York, NY 212.286.2600 212.867.8000 Harrison, NY 914.381.8900 Stamford, CT 203.323.2400 Paramus, NJ 201.712.9800 Cranford, NJ 908.272.6200 New Windsor, NY 845.220.2400 Wethersfield, CT 860.257.1870 One significant portion of the guidance confirms the extension of the IRS deadline until December 31, 2014 or the last day of the first plan year in which the amendment is effective, if later than the adoption of the amendment. Modifications to these deadlines are applicable for safe harbor 401(k) plans, certain 403(b) plans, and for a governmental 457(b) plan which permitted an IRR in 2013 or 2014. Plans are allowed to restrict the contribution component [e.g., elective deferrals, employer matching and nonelective contributions, including QMACs and QNECs, and annual deferrals to governmental 457(b) plans eligible for IRRs], and the right to make an IRR is not a protected benefit under Code §411(d)(6) and can be discontinued. If you would like more information or have any questions, please contact Louis F. LiBrandi at (212) 286-2600; llibrandi@odpkf.com About O’Connor Davies O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long history of serving clients both domestically and internationally and providing specialized professional services of the highest quality. With roots tracing to 1891, seven offices located in New York, New Jersey and Connecticut, and approximately 400 professionals including 70 partners, the Firm provides a complete range of accounting, auditing, tax and management advisory services. O’Connor Davies is ranked as number 36 in Accounting Today's 2013 "Top 100 Firms" in the United States. The Firm is also within the 20 largest accounting firms in the New York Metropolitan area according to Crain's New York Business and the Westchester and Fairfield County Business Journals. O’Connor Davies, LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. IRS CIRCULAR 230 DISCLOSURE: To comply with IRS regulations, we are required to inform you that unless expressly stated otherwise, any discussion of U.S. federal tax issues in this correspondence (including any attachments) is not intended or written to be used, and cannot be used, (i) to avoid any penalties imposed under the Internal Revenue Code, or (ii) to promote, market, or recommend to another party any transaction or matter addressed herein.

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