Roth Contributions

[thepensionmaven]

W have a 01(k) plan which was effective in 2021.

Accountant wants to add  Roth contriubtions and recharacterize all prior contriubtions as Roth.

Need some cites, seems crazy.

[CuseFan]

You can do an in-plan Roth conversion provided the plan document allows for it, which may mean an amendment from the sounds of it.

[Lou S.]

As CuseFan points out if the Plan allows for ROTh and in-Plan conversions of ROTH, then sure he could do that.

If by recharaterize he means go back and change each year from pre-tax to ROTH retroactively, no.

[Artie M]

OP:  I assume you are saying that the accountant wants to add Roth contributions to the plan and permit participants, such as him/her, to elect a Roth conversion.  If that's the case, this is permissible and most plan recordkeepers should be able to administer Roth conversions (but you should confirm that they can).  The Roth in-plan conversion was added by ATRA 2012 and is codified in IRC §402A.  Adding the Roth contributions and a Roth conversion feature requires a discretionary amendment to the plan that must be adopted by the end of the year in which the provision is first effective.

I used the "I assume" because it almost sounds like the accountant wants to unilaterally recharacterize all contributions for all participants as Roth.  That is not permissible.  A person has to have a right to elect the conversion because such a conversion may not be advantageous for them.  The big question for a  participant considering a conversion (or partial conversion) usually is whether a participant has enough cash on hand to handle the tax hit when the converted pre-tax contributions (including earnings) are taxed as ordinary income in the year of conversion.  Note that no income taxes are withheld at the time of conversion.  Also there are some holding rules that would have to be met.  The other thing that we've run into in the past... and I think, but am not positive, this is the case... is that participants should know that once they make a Roth conversion it cannot be unwound later (unlike Roth IRAs). 

Just my thoughts so DO NOT take my ramblings as advice.