Compliance January 3, 2013

Fiscal Cliff Deal Extends Roth Conversions

While the fiscal cliff deal left tax treatment of retirement savings unchanged, it includes a provision for retirement plans that could generate revenue right away.
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The American Taxpayer Relief Act of 2012 includes a provision allowing for in-plan Roth conversions of defined contribution retirement plan accounts otherwise not distributable, without any income limitations. Previously, only amounts deemed distributable—such as upon attainment of age 59 ½ by a participant—could only be converted to Roth accounts.  

The provision is effective January 1, 2013, but prior account balances are allowed to be converted.  

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According to news reports, the provision is expected to raise $12.2 billion in 10 years to help pay for the two-month delay of spending cuts in the deal.

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