Compliance November 23, 2010

IRS: No Mandatory Withholding for In-plan Roth Rollovers

Plan sponsors who are allowing direct Roth rollovers from 401(k) and 403(b) plans don’t have to worry about mandatory withholding for those “distributions.”
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According to a notice posted by the Internal Revenue Service on its website, mandatory 20% withholding does not apply to in-plan Roth direct rollovers.

On September 27, President Obama signed the “Small Business Jobs and Credit Act of 2010,” which allows the taxable transfer of a participant’s contributed pre-tax money to an in-plan Roth option. Previously, a participant who wanted to convert to a Roth had to do it outside a plan, to a Roth IRA (see Inside “Out”?).

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More specifically, the IRS noted that Section 2112 of the Small Business Jobs Act (Public Law 111-240), allows participants to make rollovers from their 401(k) and 403(b) plans to their designated Roth accounts (an “in-plan Roth rollover”) after September 27, 2010.  The taxable amount rolled over is includible in income equally in 2011 and 2012, unless the taxpayer elects to include it in 2010.  The additional tax under section 72(t) does not apply to these rollovers. 

The IRS says that the amount rolled over should be reported in box 1 (Gross distribution), the taxable amount in box 2a, and any basis in the rollover in box 5 (Employee contributions). Further, Code G in Box 7 on Form 1099-R should be used.

The notice goes on to say that distributions made to plan participants in 2010 from designated Roth accounts must be reported on a separate Form 1099-R, and that the portion of a distribution from a designated Roth account that is allocable to an in-plan Roth rollover must be reported on a Form 1099-R.  “Report the distribution as you would any other distribution from a designated Roth account; however, in the blank box to the left of box 10, enter the amount of the distribution allocable to the in-plan Roth rollover”.

The IRS notice is online at http://www.irs.gov/formspubs/article/0,,id=109875,00.html

The “Changes to Current Tax Forms, Instructions, and Publications” also contains information relevant to:

  • Change to Form W-11, HIRE Act Employee Affidavit
  • Changes to 2010 Forms W-2 series, W-3 series, and Instructions, due to Hiring Incentives to Restore Employment (HIRE) Act
  • Correction to 2010 Instructions for Forms W-2 and W-3
  • Changes to Publication 15 (Circular E), Employer’s Tax Guide (for use in 2010)
  • Correction to Publication 15, (Circular E), Employer’s Tax Guide, for use in 2010. 

More information about the Roth in-plan rollover option is available at http://www.plansponsor.com/MagazineArticle.aspx?id=6442475310&magazine=6442475347 

Products November 22, 2010

Envestnet Introduces Wealth Management Platform

Working off the “unified managed household” (UMH) advice model, Envestnet says it has created the industry’s first advisory platform with integrated analysis, guidance, and reporting features.  
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In a press release, Envestnet says it sees a growing trend for advisers to favor the UMH model, and the Envestnet platform offers data aggregation that allows advisers to assemble a complete picture of the client’s wealth, including investable assets (those managed by the adviser) as well as external assets (those managed by other providers).

The platform’s features are designed to help advisers build and maintain client trust by making the portfolio design and management process more streamlined and transparent. To guide fiduciary decision-making, the Envestnet platform offers an interactive feature called Fiduciary Oversight Notes, or “FONs.”  FONs are virtual “sticky notes” that help the adviser document his or her decision making and maintain a record of the fiduciary process.

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Other features of the Envestnet platform include:

  • Portfolio Analysis: The platform allows an adviser to conduct diagnostics on a portfolio for greater transparency, perform “what-if” scenarios to help assess the probable success of a strategy’s ability to meet client goals, and view side-by-side comparisons of a proposed investment versus a target allocation.   
  • Filter and Comparison Tools:  The platform provides access to objective investment research on a broad list of asset managers, including access to 90% of the Cerulli top 100 managers of separately managed accounts, and more than 35 strategists under three broad categories:  strategic, tactical, and dynamic.  Filter tools allow advisers to identify only those investment products that meet their specified criteria.  Comparison tools allow advisers to see comparisons of products either graphically – by performance, risk-return, product sector, holdings, or asset allocation – or by investment profile.
  • Advanced Proposal Generation:  The platform offers capabilities to build more comprehensive investment proposals that incorporate UMH capabilities and mechanisms for fiduciary oversight, and allow advisers to perform advanced portfolio analysis on current and proposed investment strategies.
  • New Investment Solutions:  The platform offers the PMC Singer Partners Edge Portfolio, an alternative investment strategy provided via a relationship with Singer Partners, and a solution with eCD Market to offer the ability to use CDs for client’s cash equivalent needs.

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