A retirement services trade group is encouraging employers to think about the implications before using a new 401(k) and 403(b) plan Roth conversion law.
The SPARK Institute, Simsbury, Conn., has put out an alert warning sponsors against rushing to permit Roth conversions.
Participants in a traditional plan deduct contributions from taxable income today but may have to pay taxes on withdrawals later, if their retirement income is high enough that they end up paying income taxes.
Participants who have Roth plan accounts must pay income taxes today on the cash they are contributing to the plan. The government says it will let participants who retire take withdrawals free from future income tax payment requirements.
In 2010 and 2011, the government will let participants pay income taxes on the assets in existing 401(k) plan or 403(b) plan accounts and convert the accounts into Roth accounts.