The Tax Man Cometh for 2010 In-Plan Rollovers

February 2012Newsletters For Your Benefit

If you were one of many who took advantage of the special tax treatment available for in-plan Roth rollovers in 2010, now is the time to pay the piper! Thanks to a special tax rule that was made available to in-plan Roth rollovers occurring in 2010 (after September 27), one-half of the taxable income realized by virtue of the rollover is includable in your gross income for 2011, and the other half will be includable in 2012 (unless you elected to report all of the income on your 2010 return).

The entire taxable amount resulting from the in-plan Roth rollover, and the amount subject to tax in each year, should have been reported on a Form 8606 (Part III) filed with your 2010 return. The IRS recently issued guidance as to how to handle the reporting on your 2011 and 2012 returns.

If no part of the in-plan Roth rollover was distributed to you in 2010, the amount shown on Line 25(a) of the 2010 Form 8606 is to be reported on Line 16(b) of your 2011 Form 1040. On the other hand, if any part of the 2010 in-plan Roth rollover was distributed to you in 2010 and reported on your 2010 tax return, then you are to report on Line 16(b) of your 2011 Form 1040, the lesser of (a) the amount from Line 25(a) of the 2010 Form 8606, or (b) the remaining taxable amount of the 2010 in-plan Roth rollover.

If you received a distribution from the in-plan Roth rollover account in 2011, you may have to include in your 2011 income all or some of the taxable amount that otherwise would have been deferred to 2012. The amount to be reported in 2011, if any, is computed on Form 8606 (Part IV).

For more information regarding this topic, please contact Susan Foreman Jordan or any member of Fox Rothschild’s Employee Benefits & Compensation Planning Practice Group.