Senate Bill Would Permit Roth Conversion Within 401(k)s

According to a statement from Brian Graff, executive director/CEO of The American Society of Pension Professionals & Actuaries (ASPPA), an amendment to H.R. 4123 was adopted by unanimous consent that would allow distributable 401(k) account balances to be converted to Roth accounts within the 401(k) plan.

ASPPA noted that, under current law, the conversion to a Roth account is only available using a Roth IRA (see The 800 lb. Tax Gorilla).  While income tax usually would have to be paid in the year of conversion, a special rule allows tax on amounts converted in 2010 to be deferred until 2011 and 2012.

According to ASPPA, the new provision simply allows a 401(k) plan to provide for Roth conversions within the 401(k) plan so participants can take advantage of Roth conversion rules without forfeiting the protection and advantages of holding savings in an employer-sponsored retirement program.

ASPPA said that, without this proposal, many plans were considering changes that would make it easier for workers to take their retirement assets out of the plan—and that the organization was concerned about the potential for leakage out of retirement accounts for workers who had no intention of converting to a Roth account.