3792 / Can a plan restrict the types of 401(k) contributions that can be converted to a Roth 401(k)?

Yes. A plan that adopts an amendment permitting in-plan rollovers from traditional 401(k) accounts to Roth 401(k) accounts can, subject to otherwise applicable nondiscrimination requirements, restrict the types of contributions that can be rolled over. Further, the plan amendment can limit the frequency of these rollovers.¹

For example, otherwise nondistributable amounts may be permissibly rolled over, it is up to the plan itself to determine whether it will allow these rollovers. For administrative convenience, a plan may provide that it will only permit rollovers of otherwise distributable amounts or that nondistributable amounts can only be rolled over at certain intervals.

Post SECURE Act 2.0, employees are entitled to elect to have their employer matching contributions made to a Roth account instead of electing a traditional pre-tax contribution. For reporting purposes, the IRS treats Roth employer matches as though they were in-plan rollovers (meaning that the IRS treats the contribution as though the employee elected to convert traditional funds to a Roth account). The same is true for SEP IRAs and SIMPLE IRAs—the IRS continues to treat the transaction as though the funds were contributed to the IRA and immediately converted to the Roth in a taxable transaction. The 1099-R will be issued with respect to the year the employer matching contribution is actually deposited into the account. Because employers have until their tax filing deadline to deposit the funds, that means the 1099-R may be issued for the year after the year to which the contribution relates.