Single Participant Plan and Vol Non-Elective Contributions

[Earl]

do you think it would be ok to have a standing election stating that each VEC deposited to the Plan is to be converted to a Roth account?

Or do you think individual elections are needed.

(Chasing these guys for a written election each time is rough. And sometimes they make the contribution without telling me.)

Thanks

[ETA Consulting LLC]

Hmmm... That's a good question.... I don't think it would be consistent with the notification criteria before each transaction.

I think it would be safer and more consistent to have the election done once a year. How many times is the employer actually funding the NEC, once a year? I would put the onus on them to say until you take the initiative and inform me that you're ready to do this, then I have to assume that you're not. I know this seems to run counter to the 'white glove treatment' we attempt to give to our clients, but you also don't want to set yourself up to fail by not managing realistic expectations. Just some thought, but a good question.

Good Luck!

[Lou S.]

I would say a standing election would be tantamount to making a ROTH deferral election subject to the 402(g) limit. I could be wrong but I could see the IRS taking that position if the Plan was audited.

Is it really that hard to submit a conversion form with each check? I mean given the fact that result of doing so is permanent tax free gains?

[Earl]

we all know it is not that hard physically but mentally these guys only think of this once a year and it is reasonable to allow that they can't remember all the details.

I am just trying to make it a non-issue.

Rather than being a jack ass and sending him a 1099 with $21 of attributed gain because "you forgot to sign the piece of paper. Tsk, Tsk."

[Lou S.]

I agree your solution makes sense. I just don't think it would fly with the IRS is all I'm saying. They seem to get all bent out of shape with these form over substance arguments.

[Earl]

have to agree there.

Thanks

[UtahCPA-APA]

Is this a Roth deferral, or is it an Intra-Plan rollover of After-tax voluntary contributions to a Roth (not subject to 402(g)? If it is an Intra-Plan rollover, you would need to be careful of violating the Step Transaction Doctrine.