In-Plan Roth Conversions, Loans

[Guest PhDay]

Notice 2010-84, Q&A 3 & 7 discusses the allowance for loans to be included in a in-plan Roth conversion.

Does anyone know whether the loan account is subject to the age 59 1/2 requirement?

[Guest Sieve]

If you mean whether an in-plan rollover of the loan to a Roth account requires a distributable event (i.e., age 59-1/2), then Yes.

[Guest PhDay]

What do the interest portion of the payments come in as, pre-tax or Roth?

[masteff]

What do the interest portion of the payments come in as, pre-tax or Roth?

Interest is allocated to the underlying source(s) of the loan. For example if a loan was 80% pretax and 20% company match, then the interest would be split 80/20 accordingly. So... if a loan was rolled over to the Roth source, then interest would be allocated to the Roth account.

[Guest Sieve]

And, for example, if there is $10,000 outstanding when a loan is transferred wholly into a Roth, then that $10,000 is income to the participant in the year of the transfer (some 2010 conversions excepted), and that would make all subsequent interest paid on the loan to be part of the Roth account.