On September 27, 2010, the Small Business Jobs and Credit Act of 2010 was signed into law by President Obama which allows a 401(k) and 403(b) plan participant to convert their balances to a Roth account. The in-plan Roth conversion provision is effective immediately. In addition, effective January 1, 2011, this provision will also be available to 457(b) plans.

The new legislation applies to plans offering an in-service distribution option and a Roth account.

In order for a participant to be eligible for a distribution, they must qualify under the guidelines of a "distributable event" which often includes:

• Age 59 1/2
• Termination
• Retirement
• Disability
• Death

If the participant does not qualify for a distributable event, than the participant may not convert to a Roth account.

The in-plan Roth conversion may be appealing to eligible plan participants because of the special tax rule for 2010, which allows a participant who rolls over tax deferred amounts into a Roth account in the plan to include one-half of the distribution amount in gross income in 2011 and the remainder in 2012.

If you wish to allow for the in-plan Roth conversion, you must make sure your plan allows for in-service distributions and Roth contributions. If your plan does not currently allow for these provisions, and you would like to include them this year, your plan must be amended by December 31, 2010.

If you have any questions about the new legislation, please contact your This e-mail address is being protected from spambots. You need JavaScript enabled to view it for more information.