Adopt 2yr/5yr Inservice Dist. Rule for Roth Conversions

[namealreadyinuse]

The AGI limit on IRA to Roth IRA conversions will be repealed this week for a 5 year period.

Aside from the fiscal wisdom of Congress (for adopting it) or particiipants (for converting to Roth), does anyone see any issues with amending our profit sharing and matching contribution provisions to allow in service distributions for participants with 5 years of service and for contributions made at least 2 years ago.

The idea would be to allow participants to take an in-service distribution of non-401(k) funds and roll to a traditional IRAs that they could then convert to Roth IRAs.

Is the 5 year/2 year rule that easy?

Is there some discrimination issue if only HCEs somehow are the only ones taking the distributions?

[ERISAnut]

I was not aware that the AGI limit on Roth Conversions will be repealed. I need to research this one.

In responding to your question regarding the Profit Sharing Plan, this provision is quite easy in that it pertains to the "permanency issue". Cannot imagine a plan actually adopting those provisions merely to allow participants access to those Profit Sharing or Matching Contributions; but it could happen.

Plan provisions must be currently available and effectively available on a nondiscriminatory basis. The current availabiltiy rule is satisfied in that it will be a plan provision that applies to all participants. The effective availability shouldn't be an issue since all similiarly situated NHCE's have the "right" to inservice withdrawals from the Profit Sharing and Match sources.

[jevd]

See last sentance/Paragraph in this article from WSJ.WSJ ARTICLE

Effective Date 2010

[namealreadyinuse]

Ah, yes. Thanks!

I overlooked the 2010 effective date (as did the news article I read).

Much ado about nothing, then - right?

[ERISAnut]

Right, but good to know. I usually try not to retain what isn't currently effective. But, it is good to know that this is being contemplated as I was thinking just last week why they would keep the limit at 100,000. Especially not treating Single and Married Filing Jointly differently with respect to the 100,000 limit. It would appear that married filing jointly should receive a higher limit. Wishful thinking.

[jevd]

Could they make it any more complex???

See below excerpt of Conference Committee Explanation. See link on Benefits Link for full text.

Chairman Charles Grassley (R-IA) Page 9 of 10

Committee on Finance

May 5/9/2006 6:35 PM

The conference agreement eliminates the income limits on conversions of traditional IRAs to

Roth IRAs. Thus, taxpayers may make such conversions without regard to their AGI.

For conversions occurring in 2010, unless a taxpayer elects otherwise, the amount includible in

gross income as a result of the conversion is included ratably in 2011 and 2012. However,

income inclusion is accelerated if converted amounts are distributed before 2012. In that case,

the amount included in income in the year of the distribution is increased by the amount

distributed, and the amount included in income in 2012 (or 2011 and 2012 in the case of a

distribution in 2010) is the lesser of: (1) half of the amount includible in income as a result of

the conversion; and (2) the remaining portion of such amount not already included in income.

The provision is effective for taxable years beginning after December 31, 2009. The proposal is

expected to cost $447 million over 5 years and to raise $6.432 billion over 10 years.

The Bill Passed in the Senate today. President is expected to sign next week.