In-Plan Roth Conversions

[Guest Tom:]

If we add in-plan Roth conversion to our 401(k) plan, can it ever be eliminated? Are in-plan Roth conversions a 411(d)(6) protected optional form of benefit?

[Guest Sieve]

At a minimum (conservatively), it can be eliminated on a prospective basis (i.e., with regard to new money contributed to the Plan after the elimination of the conversion option), but cannot be eliminated with regard to amounts already in the plan & credited to a participant.

[Guest Tom:]

That's what I though too. Does that mean that an annuity distributed from the plan would also have to permit Roth conversions? Would it matter whether the distributed annuity was in-pay status or deferred? I think the answer is the same; any distributed annuity must permit Roth conversions.

[Guest Sieve]

Most Roth conversions are for in-service distributions only. An individual who has terminated employment might not be eligible for a Roth conversion (depending, of course, on the language of the document--if there even is language for it now).

If a terminated participant is eligible (pursuant to the plan) for an in-plan conversion, if an annuity form of payment has been elected, and if it is in pay status, I would say that the conversion option no longer would be available from the continuing annuity payments. The conversion is available if it is elected as the form of distribution. Here the distribution (annuity) is elected and no conversion was elected as part of that distribution. Each annuity payment is simply a continuation of the elected form of distribution, and not an independent distribution.

[Guest Tom:]

So it sound like our plan amendment that adds the Roth conversion should say that conversion is only avalable to in-service participants or, maybe, only available to participants who have not received a distributed annuity.

[FormsRstillmylife]

In-plan Roth rollovers are limited to eligible rollover distributions. An annuity payable over life expectancy is not an eligible rollover distribution; therefore, it cannot be rolled over to a Roth account or Roth IRA.

[Guest Sieve]

There's your answer!!

[Guest Tom:]

I don't think that's really the answer. Isn't it the corpus of the annuity that would be rolled over in a lump sum. I think you've confused the annuity payments with the annuity contract. The annuity payments are not eligible for rollover, but the value of annuity contract could be eligible for an in-kind lump-sum rollover to a Roth account.

[masteff]

Two scenarios w/ rollovers.... INTO the plan and OUT of the plan.

An in-plan roth conversion is about the plan's ability to accept a rollover into the Roth account from a non-Roth source. The ability to make the rollover eligible distribution (that might then be converted) is a separate issue from the acceptance of the conversion.

This next part is where I'm in the dark (having never dealt w/ the topic of distributed annuities)...

1) does the annuity have to accept rollovers into it if the distributing plan did? I'd think no because I don't think acceptance of rollovers into a plan is a protected benefit.

2) what code and regs govern the annuity after distribution? 402/402A or 408/408A?

My assumption is that once distributed, the annuity is governed by 408/408A, so the subsequent ability to convert to a Roth would come automatically w/ the ability to do a rollover eligible lumpsum distribution.