Can You Convert Assets to a 401(k)?

This question comes up from time to time and it came up again last week. Usually the answer is short and sweet - “No.” This week the answer is, maybe.

But first, a word about Roth 401(k)s (or 403(b)s). You cannot have a standalone Roth 401(k) account. It can only be an option offered by an existing 401(k) plan. The funds that go into a Roth 401(k) are mainly from salary deferrals (which are after-tax funds). The company match, forfeitures, and other contribution amounts must go into the 401(k) side of the plan. The tax code does not allow conversions to a Roth 401(k) and it does not allow you to roll Roth IRA money into your Roth 401(k).

What’s different this week? Congress is considering legislation that will allow conversions of 401(k) funds to Roth 401(k) accounts. Don’t get too excited just yet. The Senate has passed this legislation and now it has to go to the House, so there is a ways to go before it becomes law. The Roth conversion component is one of the revenue raisers in the bill so it will probably survive. But I am not going to go into any details now because nothing is definite yet. But stay tuned.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
------------------------------------------------------------------------------
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC