July 22, 2019

July 19, 2019

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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.

© 2019 Bracewell LLP


About this Author

Bruce R. Jocz, employee benefits, Attorney, Bracewell Law Firm

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.

Scott Sanders, Labor Attorney, Bracewell Law Firm

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.

Allison K. Perry, Labor Law Attorney, Bracewell Law Firm

Allison Perry counsels clients in matters involving executive compensation and employee benefits matters, including qualified and non-qualified retirement plans, employment agreements, severance arrangements, change in control agreements, equity-based compensation arrangements, deferred compensation arrangements, incentive compensation arrangements, welfare benefit plans, and other fringe benefit arrangements. Ms. Perry’s practice focuses on  a variety of corporate and tax issues that are incident to the design, implementation, administration and sponsorship of employee...