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April 17, 2014

Fiscal Cliff Legislation's Impact on Roth Conversions for Deferral Retirement Plans

The newly passed American Taxpayer Relief Act of 2012 contains provisions related to a Roth IRA account. Currently, employee deferral plans, like 401(k), 403(b) or 457(b) plans, may have a Roth feature to allow employees to contribute to such plans on an after-tax basis with earnings thereon tax-free when distributed. Plans currently may allow employees to convert their traditional (pre-tax) accounts to a Roth account with respect to amounts for which an employee can elect a distribution. The new law allows employees to convert any traditional (pre-tax) amounts within an employee deferral plan into a Roth account, even if the employee cannot elect a distribution of such amount. The amount so converted would be subject to regular income tax in the year of conversion and the earnings thereon after such conversion would be tax-free when distributed. It is anticipated that plan amendments would be required to allow for the conversion. It is also assumed that an employee must be fully vested in the amounts converted to a Roth account.

From a retirement plan perspective, the new law placed no new caps or limits with respect to contribution levels.

© 2014 Bracewell & Giuliani LLP

About the Author

Bruce R. Jocz, Labor Law Attorney, Bracewell & Giuliani Law Firm
Partner

Bruce Jocz advises public and privately held corporations in the design and implementation of employee benefit programs, including qualified and non-qualified plans and executive compensation programs. Mr. Jocz structures the employee benefit aspects of corporate reorganizations, acquisitions, mergers and divestitures to comply with the Employee Retirement Income Security Act (ERISA) and to maximize income tax benefits.

713-221-1109

About the Author

Scott C. Sanders, Labor Law Attorney, Bracewell Giuliani Law Firm
Partner

Scott C. Sanders provides legal counsel in employee benefits and represents publicly traded and privately owned companies in the design, implementation and administration of employee benefit plans and executive compensation arrangements. He also handles the analysis and structuring of the employee benefit programs in corporate reorganizations, acquisitions, mergers and divestitures.

713-221-1438
Allison K. Perry, Labor Law Attorney, Bracewell Giuliani Law Firm
Associate

Allison Perry counsels clients in matters involving employee benefits, including health and welfare plans and retirement plans. Ms. Perry provides advice to clients regarding a variety of corporate and tax issues that are incident to employee benefit plan sponsorship, including disclosure and filing requirements, distributions, Qualified Domestic Relations Orders, and fiduciary duties in plan administration, reorganization and termination.

713-221-1334

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