The recently enacted Small Business Jobs Act of 2010 (H.R. 5297) includes two important retirement plan provisions. The bill was signed into law by President Obama on Sept. 27, 2010.
The first provision allows governmental 457(b) plans to be amended to allow participants to treat elective deferrals as Roth contributions. Roth contributions are currently permitted under 401(k) plans and 403(b) plans. This provision is effective for tax years beginning after Dec. 31, 2010.
The second provision allows an employer sponsoring a 401(k), 403(b) and/or governmental 457(b) plan that permits Roth contributions to be amended to allow participants to roll their pre-tax account balances to a Roth account under the plan. The rolled over amount can be included in taxable income. However, the 10 percent tax penalty under Internal Revenue Code Section 72(t) generally imposed on early distributions would not apply. Further, rolled over amounts consisting of after-tax contributions would not be included in taxable income. A participant electing a rollover to a Roth account can spread the tax burden by paying the tax in 2011 and 2012.