The Senate reportedly plans to complete work on a small business jobs bill when it returns from its summer recess in mid-September. The bill would permit rollovers from 401(k) plans, 403(b) plans, and governmental 457(b) plans into designated Roth accounts. The Small Business Jobs and Credit Act of 2010 (H.R. 5297), which passed the House on June 17, 2010, did not contain the rollover provisions. A substitute amendment in the Senate added the rollover provision and provisions allowing participants in governmental 457 plans to treat elective deferrals as Roth contributions and permitting partial annuitization of nonqualified annuity contracts.
Rollovers to Roth accounts
The bill would allow 401(k), 403(b), and governmental 457(b) plans to permit participants to roll their pre-tax account balances into a designated Roth account. The amount of the rollover would be includible in taxable income except to the extent it is the return of after-tax contributions. If the rollover is made in 2010, the participant could elect to pay the tax in 2011 and 2012. Plans would be able to allow these rollovers immediately upon enactment of the legislation.
Elective deferrals in governmental 457 plans
Beginning in 2011, the bill would allow plans sponsored by state and local governments (governmental 457(b) plans) to include Roth accounts, which are currently available only in 401(k) and 403(b) plans.
Partial annuitization of nonqualified annuity contract
In addition, the bill would allow holders of nonqualified annuities (i.e., annuity contracts held outside of a tax-qualified retirement plan or IRA) to elect to receive a portion of the contract in the form of a stream of annuity contracts, leaving the remainder of the contract to accumulate income on a tax-deferred basis.
Source: Senate Finance Committee, Summary of Small Business Jobs Act, August 5, 2010.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.