mrslappywhite Posted February 21, 2019 Share Posted February 21, 2019 Anyone have a cite or guidance on the feasibility or legality of "reclassifying" After-tax contributions as Roth deferrals? A client who claims they weren't aware that their document does not allow After-tax to be matched is balking at forfeiting match excesses and has asked if they can reclassify the After-tax as Roth so the participants can keep their match. I want to tell them NO but I can't find anything either in support of this or opposed to it. Link to comment Share on other sites More sharing options...
Kevin C Posted February 22, 2019 Share Posted February 22, 2019 The definition of Roth deferrals is in 1.401(k)-1(f)(1). Amounts originally contributed as employee after-tax contributions do not meet this definition. Quote 1.401(k)-1(f) Special rules for designated Roth contributions—(1) In general. The term designated Roth contribution means an elective contribution under a qualified cash or deferred arrangement that, to the extent permitted under the plan, is— (i) Designated irrevocably by the employee at the time of the cash or deferred election as a designated Roth contribution that is being made in lieu of all or a portion of the pre-tax elective contributions the employee is otherwise eligible to make under the plan; (ii) Treated by the employer as not excludible from the employee's gross income (in accordance with paragraph (f)(2) of this section); (iii) Maintained by the plan in a separate account (in accordance with paragraph (f)(3) of this section). It would be worth looking at 1.401(a)(4)-11(g) to see if a retroactive amendment to extend the match to after-tax contributions would be allowed. Depending on who made after-tax contributions, you might have a problem with the nondiscrimination requirements in -11(g)(3)(v). Link to comment Share on other sites More sharing options...
mrslappywhite Posted February 22, 2019 Author Share Posted February 22, 2019 Thank you! This is perfect. And client agreed to forfeit the excess after I told them all the issues with doing a reclassification if it were allowed (rerunning ADP/ACP, taxation issues, etc.) Link to comment Share on other sites More sharing options...
Luke Bailey Posted April 23, 2019 Share Posted April 23, 2019 If plan allows after-tax as well as Roth, the SPD should state clearly that there is no advantage to doing after-tax until Roth bucket full, except for, in most plans, easier distribution rules for after-tax. Luke Bailey Senior Counsel Clark Hill PLC 214-651-4572 (O) | LBailey@clarkhill.com 2600 Dallas Parkway Suite 600 Frisco, TX 75034 Link to comment Share on other sites More sharing options...
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