PLANSPONSOR has an informative article on in-plan ROTH 401(k) conversions. Federal regulators still haven’t released all of the details, but the PLANSPONSOR article sheds some more light on the subject.
One of the biggest outstanding questions was the extent to which employees under age 59 1/2 could convert. It appears that plan sponsors can permit full participation, according to Alison Borland of Aon Hewitt. “The legislation introduces the option of expanding distribution options, while making them contingent on conversions if the plan sponsor so chooses.” Currently, plans generally do not allow participants to withdraw employer-match dollars before age 59 1/2. The legislation says that plans can allow participants to a take that out, but only if they convert it to a Roth. Any money that is distributable and eligible for a rollover, they can convert.”
A conversion is much simplier if a plan sponsor already has a Roth 401(k) option. Borland states in the article that “The conversion feature does not require a sponsor to reconfigure its systems if a Roth feature is already offered…but the recordkeeper has to accommodate the conversions.” Hewitt will start allowing in-plan conversions later this year.
One plan change that might need to occur that is not discussed in the article is around eligible distributions. Many plans do not permit currently employed participants to rollover their 401(k) to an IRA (Roth or otherwise). If this is the case, plan documents would have to be changed to allow in-service distributions to let current employees take advantage of an in-plan conversion to Roth.