In-Plan Roth Conversion

General Description

As of January 2013, Savings Plus provided the option to contribute both on a pre-tax and Roth after-tax basis. Now, you may also elect to convert all or any portion of your existing pre-tax 401(k) Plan or 457(b) Plan assets to Roth assets (regardless of your employment status) by completing an In-Plan Roth Conversion Election Form.

Eligibility

Only your pre-tax assets in the Savings Plus 401(k) Plan or 457(b) Plan are eligible for an In-Plan Roth Conversion. Additionally, Spousal Beneficiaries and Spousal Alternate Payees are also eligible for an In-Plan Roth Conversion.

Tax Considerations

If you complete an In-Plan Roth Conversion, the conversion amount is subject to ordinary income taxes for the year of the conversion. You are responsible for the tax liability and estimated tax payments associated with your In-Plan Roth Conversion. Savings Plus will not withhold taxes. You may wish to increase your payroll withholding or make estimated tax payments to avoid an underpayment penalty. See Publication 505, Tax Withholding and Estimated Tax. Savings Plus will issue a Form 1099-R by January 31 of the year following the In-Plan Roth Conversion.

Once an In-Plan Roth Conversion is processed, the conversion is irrevocable and the funds cannot be changed back to pre-tax funds. You may want to seek advice from a tax professional or financial adviser about Roth Contributions and In-Plan Conversions before making a decision.

In-Plan Roth Conversion Taxation

401(k) In-Plan Roth Conversion

457(b) In-Plan Roth Conversion

Taxation of Withdrawals from an In-Plan Roth Conversion Account

If the distribution is made 5 years or more after January 1st of the earlier of (i) the first year a Roth contribution is made or (ii) the first year an In-Plan Roth Conversion occurs; and the distribution is on account of your attainment of age 59½, death or disability, the distribution is a qualified distribution and is not subject to taxation.
If the distribution is not a qualified distribution, the earnings portion of the distribution will be taxed as ordinary income and, unless an exception applies, will be subject to an additional 10% early withdrawal tax.
Unless an exception applies, if the distribution is made before the earlier of (i) January 1st of the calendar year which includes the 5th anniversary of the first year in which the In-Plan Roth Conversion occurred or (ii) attainment of age 59½ the entire distribution from the In-Plan Roth Rollover Account will be subject to a 10% recapture tax;  however, the additional 10% early withdrawal tax (see previous paragraph) will not apply.

If the distribution is made 5 years or more after January 1st of the earlier of (i) the first year a Roth contribution is made or (ii) the first year an In-Plan Roth Conversion occurs and the distribution is on account of your attainment of age 59½, death or disability, the distribution is a qualified distribution and is not subject to taxation.
If the distribution is not a qualified distribution, the earnings portion of the distribution will be taxed as ordinary income. Unless an exception applies, the entire distribution from In-Plan Roth Conversions which originated from pre-tax money from a qualified plan or IRA will be subject to a 10% recapture tax. The 10% recapture tax will not apply to any In-Plan Roth Conversion which originated from a 457(b) account. The additional 10% early withdrawal tax will not apply.

NRW-4734CA-CA
NRW-4734CA-CA
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