ATRA Recap

The American Taxpayer Relief Act, which made permanent the Bush-era tax cuts for single tax files earning less than $400,000 and families with combined income under $450,000 contained two important retirement provisions:

IRA Charitable Rollovers. The $100,000 IRA charitable rollover provision was extended through 2013. A special rule will permit a rollover during January of 2013 to be treated as a 2012 rollover. In addition, individuals who took a distribution in December of 2012 will be able to contribute that amount to a charity and count it as an eligible charitable rollover provided it otherwise meets the requirements for an eligible charitable rollover.

In-plan Roth Conversions.   The previous requirement that an account balance can only be converted to Roth after one of the qualifying events: changing jobs, retirement, or reaching age 59 ½ -was eliminated. The new provision will allow all vested balances in a 401(k), 403(b) or 457(b) plan which includes a Roth feature to be eligible for conversion, including, for example, elective deferrals, matching contributions, and profit-sharing contributions. This is a permanent provision, effective for transfers after December 31, 2012.

The converted amount would be subject to income tax in the year of conversion, but, under a special rule, would be deemed to be exempt from the 10% tax on early distributions, regardless of whether the participant is under age 59 1/2. It does not appear that conversions would be subject to the 3.8% tax on the net investment income of higher income taxpayers.

It’s important to note that unlike Roth IRA conversions, which can be reversed by the following October 15th, plan conversions are irrevocable.

We will continue to monitor the additional developments and associated guidance keeping you apprised of the most relevant items.

As always, if you have any questions, do not hesitate to send a note to or call (888) 926-0600.