New Legislation Expands Roth Features for Retirement Plans

Parts of the Small Business Jobs and Credit Act (PDF), signed into law by the President on September 27th, will expand the availability of Roth features in retirement plans. Under the law, 403(b) and 401(k) plans that currently offer a Roth feature may immediately permit eligible plan participants to convert pretax savings to after-tax Roth savings. In addition, governmental 457(b) plans will be able to add the Roth and conversion features to their plans at the beginning of next year.

  • Effective immediately, 401(k) and 403(b) plans currently offering Roth features may allow eligible participants to convert pretax savings to post-tax Roth savings within the plan.
    Formerly, eligible* participants who wanted to make this conversion had to roll over the savings out of the plan to a Roth IRA and hold the funds in the IRA for five years before withdrawing them. Participants who choose to convert the savings in 2010 (either inside the plan or into a Roth IRA) have the option of spreading the tax liability for the conversion over two years, starting in 2011. These changes in the law enable the retirement plan to retain assets. For participants, they create a tax incentive for conversion, provide an alternative to rollover to a Roth IRA and potentially shorten the five-year holding period for converted assets.
     
  • Effective December 31, 2010, public 457(b) plans may make Roth contribution and conversion features available to plan participants.
    This change in the law extends the availability of the Roth feature to public 457(b) plans and their participants. These plans would also have the option to allow pretax savings to be converted to post-tax Roth savings within the plan.

If plan sponsors decide to implement these features, they will generally be required to amend their plan documents to reflect the changes and communicate to participants accordingly. TIAA-CREF is in the process of reviewing the new law and will be providing you with a more detailed analysis of its provisions, guidance on how these new opportunities can be used within your retirement program and specific next steps if you choose to add these new features to your plan.

For more information on the new law, and the opportunities that it may present, please contact your Managing Consultant or, if you are served by the Administrator Telephone Center, please call them at 888 842-7782.

*In order to be eligible to convert pretax savings, participants generally have to be over age 59½ or have experienced a “triggering event, e.g. have separated from service, become disabled or have died.

FOR INSTITUTIONAL INVESTOR USE ONLY. NOT FOR USE WITH OR DISTRIBUTION TO THE PUBLIC.

TIAA-CREF NEWS ARCHIVE

© 2013 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017