Roth Rollover

[Guest MarieNo]

Can an employer's 401(k) plan accept rollovers of Roth contributions if the plan doesn't also permit Roth elective deferrals? For example, an employer maintains a 401(k) plan that does not permit Roth elective deferrals. The employer wants to amend the plan to permit and separately account for Roth rollovers (but not new Roth elective deferrals) so that new hires can transfer Roth balances in from other 401(k) plans. The regulation can be interpreted to say that Roth transfers cannot be acepted if the receiving plan doesn't also allow Roth elective deferrals. However, I haven't found any explicit statement to that effect in any primary or secondary source. Any thoughts would be appreciated! Thank you!

[401king]

Yes, the plan can accept Roth rollovers while excluding Roth deferrals.

edit: Assuming the document permits Roth rollovers.

[Kevin C]

I disagree. If the receiving plan does not allow Roth deferrals, how does it have a "designated Roth account" as defined in 1.402A-1 Q&A 1 that can receive the rollover? The code and regs say it can be rolled into a designated Roth account, see 1.402A-1 Q&A 5.

Notice 2010-84 addresses that issue regarding in-plan rollovers in Q&As 19 and 20. It's pretty clear the plan must have a designated Roth account that allows Roth deferrals at the time of the in-plan rollover. I don't see how the rules would apply any different when receiving a rollover from another plan's designated Roth account.

Q-19. Must a plan have a qualified Roth contribution program in place at the time a rollover contribution to a designated Roth account is made in an in-plan Roth rollover?

A-19. Yes. Thus, for participants to be eligible for the 2-year income deferral described in Q&A-10 of this notice, the distribution must be made no later than December 31, 2010, and, at the time of the rollover contribution to the designated Roth account, the plan must have a qualified Roth contribution program in place.

Q-20. For purposes of Q&A-19 of this notice, when is a qualified Roth contribution program in place?

A-20. Although, pursuant to Q&As-15 through -18 of this notice, a plan may be amended retroactively to add a qualified Roth contribution program, such a program is in place on a given date only if, with respect to compensation that could be deferred beginning with that date, eligible employees are given an opportunity to elect on that date to have designated Roth contributions made to the plan (or would have such an opportunity but for a statutory or plan limitation on the amount of an employee's elective deferrals).

[401king]

Thank you for the clarification, Kevin. It seems I was steered wrong by our document provider years ago (asked this exactly same question about 3 years ago). After reading a few pages from the IRS, namely http://www.irs.gov/retirement/article/0,,id=232330,00.html, it appears that you must allow Roth contributions before you can accept any other Roth funds (including a direct rollover or in-plan conversion).