Budget Deal may permit Roth Conversion in 401(k)s

[bUU]

Half of the $24 billion cost of delaying the cuts would be covered by allowing 401(k) retirement account holders to convert some of their balances into Roth-style individual retirement accounts that can be tapped tax-free in retirement, said a Senate aide familiar with the talks.
The change would raise revenue because people who do such conversions pay income taxes up front. The conversions aren’t currently allowed in 401(k) plans, the aide said.http://www.bloomberg.com/news/2013-01-01/biden-to-pitch-budget-deal-to-democrats-as-vote-possible.html

The concern I would have would be if that extends the pro rata rule to include the pre-tax portion of 401(k)s, instead of establishing a separate rule, it basically kills the idea of a Backdoor Roth for anyone with substantial pre-tax 401(k) balances.

[bUU]

Here's the actual text related to my concern:


155
16 SEC. 1002. AMOUNTS IN APPLICABLE RETIREMENT PLANS
17 MAY BE TRANSFERRED TO DESIGNATED
18 ROTH ACCOUNTS WITHOUT DISTRIBUTION.
19 (a) IN GENERAL.—Section 402A(c)(4) is amended by
20 adding at the end the following:
21 ‘‘(E) SPECIAL RULE FOR CERTAIN TRANS-
22 FERS.—In the case of an applicable retirement
23 plan which includes a qualified Roth contribu-
24 tion program—
156
1 ‘‘(i) the plan may allow an individual
2 to elect to have the plan transfer any
3 amount not otherwise distributable under
4 the plan to a designated Roth account
5 maintained for the benefit of the indi-
6 vidual,
7 ‘‘(ii) such transfer shall be treated as
8 a distribution to which this paragraph ap-
9 plies which was contributed in a qualified
10 rollover contribution (within the meaning
11 of section 408A(e)) to such account, and
12 ‘‘(iii) the plan shall not be treated as
13 violating the provisions of section
14 401(k)(2)(B)(i), 403(b)(7)(A)(i),
15 403(b)(11), or 457(d)(1)(A), or of section
16 8433 of title 5, United States Code, solely
17 by reason of such transfer.’’.
I suppose we'll have to check each of the references to know if any of them are references to the pro rata rule.

[ApatheticNoMore]

Great, another bunch of stuff noone could ever conceivably understand without talking to a tax accountant. >8) Pretty much my default plan at this point though, don't do almost anything new financially without talking to one.