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gregburst

splitting pre-tax and Roth in a merger

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A client of mine, company A, recently purchased company B; it was a stock purchase. Company B was a subsidiary of a big conglomerate and participated in their 401k, which included Roth contributions.

Company A's plan does not allow Roth, and they'd like to keep it that way. They don't even want the Roth rollovers coming into their plan.

Employees of B were not given distribution options. They were told that all funds would be transferred to company A's 401k (before A had considered the Roth issue). However, if they could bring all assets EXCEPT Roth, they would much prefer that. But is that allowed in a merger? Can the merger instrument state that only non-Roth assets will be merged? And Roth assets will need to remain where they are?

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On 4/24/2020 at 7:26 PM, gregburst said:

But is that allowed in a merger? Can the merger instrument state that only non-Roth assets will be merged? And Roth assets will need to remain where they are?

I think it's one of those things that in theory you could do whatever you want - write the merger documentation to say "everything but Roth" - but then the question is "is it a good idea?"  And I think the answer is no.  I'm a big fan of keeping things simple and this would not be.  (The thought of trying to deal with the big conglomerate and their admin people for something out of the norm makes me shudder.)  Personally I'd suggest accepting the Roth money (and adding the Roth feature).  I'd want to know the reasons for not wanting it and try to address them.  Otherwise just don't do the merger at all (unless documentation has already been signed, then they are stuck, IMO).

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gregburst, you mean a plan merger, i.e., A purchased B and has already taken legal action to "merge" B's plan into A's? If that is the case, then it would seem to me they have the Roth money. I may be missing a clever solution, but it seems to me that the only way they can get rid of it is if the participants with Roth accounts qualify for and take distributions of their Roth accounts. Of course, then can just grandfather the accounts that come over and not otherwise provide for more Roth money, i.e.,  this does not force them to add Roth for other amounts.

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