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Recent IRS Guidance on in-Plan Roth Solo 401(k) Plan Rollovers Impacting Solo 401(k) Plan Owners

IRS Notice 2013-74 offers guidance to solo 401(k) Plan owners on deadlines for adopting in-plan Roth rollover amendment

The IRS on December 12, 2013 issued guidance in IRS Notice 2013-74 to qualified retirement plans, including the solo 401(k) plan, on in-plan rollovers to designated Roth Solo 401K accounts. The guidance in IRS Notice 2013-4 relates to the expansion of such rollovers under the American Taxpayer Relief Act of 2012. The notice also provides guidance that applies to all in-plan Roth rollovers described in Section 402A(c)(4) of the Tax Code.

Section 402A of the Tax Code sets out the rules for designated Roth Solo 401k contributions. A qualified distribution from an employee’s designated Roth account is excludable from gross income. Section 402A(c)(4)(E) provides that a plan with a designated Roth account can permit an in-plan Roth rollover of an amount not otherwise distributable under the plan. “One of the most important aspects of Notice 2013-74 is that it offers guidance on how the in-plan Roth rollover process works,“ stated Adam Bergman, a tax advisor with the IRA Financial Group. According to Mr. Bergman, the Notice clarifies that once can convert pre-tax 401(k) plan funds to a Roth after-tax account even if the funds were not available for distribution – no triggering event existed.

Notice 2013-74 clarifies that an amount rolled over to an individual’s designated Roth account pursuant to an in-plan Roth rollover remains subject to the plan’s distribution restrictions otherwise applicable to that amount before the in-plan Roth rollover. The deadline for adopting an amendment providing for in-plan Roth rollovers is the later of the last day of the first plan year for which the amendment is effective or December 31, 2014, provided the amendment is effective as of the date the plan first operates in accordance with the amendment. “Notice 2013-74 is so important to businesses that have established solo 401(k) plans because it allows them an extra year to adopt an amendment allowing for the in-plan Roth rollover feature,“ stated Mr. Bergman. “The IRS was expected to provide 401(k) plan sponsors with approved plan in-plan Roth amendments in the 2013 taxable year but it never occurred so Notice 2013-74 is essence bought the IRS an extra year to approve the necessary plan amendments,” stated Mr. Bergman.

This extended deadline also applies to plan amendments that allow for elective deferrals under the plan to be designated as Roth contributions, allow for the acceptance of rollover contributions by designated Roth accounts, or permit in-plan Roth rollovers of some or all otherwise distributable amounts.

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.

IRA Financial Group is the market’s leading “provider of IRS approved self-directed individual 401(k) plans. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

To learn more about the IRA Financial Group please call 800-472-0646.

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Posted in IRA Financial Group, Solo 401(k)