Roth Conversion Timing

[Dougsbpc]

We administer a 60 participant 401(k) plan where one of the owners of the plan sponsor never wants to see one dime of traditional money in his account.

I explained to him that the profit sharing contribution must be traditional, but once deposited he can convert to Roth.

In this case, the plan sponsor decides each year if they want to make a profit sharing contribution. If so, they contribute it March 15 for a December year end.

For example, for the 12/31/15 valuation, we showed the $35,000 profit sharing contribution as traditional receivable. Then when contributed on March 15, 2016, we gave him a Roth conversion form. He signed the form March 16, 2016. We will provide him a 1099-R in January 2017 showing the conversion taxable for 2016.

He now wants to get as close as possible to never having any traditional money in his account. He wants his 2017 profit sharing contribution funded to his directed account January 1, 2017 and convert it to Roth the first week of January. Meanwhile everyone else (referred to him as traditional losers), will need to wait for their allocation until March 15, 2018.

Other than potential discrimination in operation for the timing of deposits, does anyone see a problem funding before year end and immediately converting to Roth?

Thanks.

[Belgarath]

"Other than potential discrimination in operation for the timing of deposits, does anyone see a problem funding before year end and immediately converting to Roth?"

I can't get to the Roth conversion, because the deposit scheme you propose fails miserably, IMHO. Plan has an allocation method. Contributions must be allocated according to that method. Making a contribution just for the owner on January 1m whether or not he converts to Roth, just isn't acceptable.

As the AFLAC commercial guy says when asked if the duck kicking the golf ball into the hole is legal, "That's a big fat NOOO."

Others may, of course, disagree.