A provision in the recently enacted 2012 American Taxpayer Relief Act permits an individual to convert any portion of their balance in an employer-sponsored tax-deferred retirement plan account into a Roth IRA account under that plan. This conversion option for retirement plans is only available if employer plan sponsors include this feature (i.e., in-plan Roth) in the plan. Prior to the Act, only eligible retirement plan distributions could be rolled over to an in-plan Roth IRA.

The catch under the new Roth conversion provision is that the conversion will be fully taxed, assuming the conversion is being made with pre-tax dollars (money that wasn’t taxed to an employee when contributed to the qualified employer-sponsored retirement plan). The taxable amount will also include the earnings on those pre-tax dollars.

The provision is effective for post-2012 transfers, in tax years ending after December 31, 2012.

Please contact Martini, Iosue & Akpovi by phone at (818) 789-1179 if you have questions or want more information on this tax-saving opportunity.