Persons eligible to make an IPRC. A rollover election can be made not only by a plan participant but also by a surviving spouse beneficiary or by an alternate payee who is a spouse or former spouse (Notice 2010-84, Q&A 14).
Amounts can be eligible for conversion only if they meet both Code and plan requirements, specifically, (1) the amount is vested; (2) the plan has a qualified Roth contribution program in place at the time an IPRC is made to the Roth account (not accounts created solely for the purpose of receiving rollover amounts); (3) the conversion meets the requirements for a distribution under the Code and is an eligible rollover distribution under section 402(c)(4); and (4) the plan's governing instrument permits distributions for rollover purposes (see Q&A's 2 and 19).
A plan can be amended to add an IPRC option for amounts that are permitted to be distributed under the Code but could not be distributed under the plan's more restrictive terms.
Besides the restrictions on eligible participants' age and status noted above, amounts that would not qualify for a rollover to another eligible retirement plan do not qualify for an IPRC. These include required minimum distributions (RMDs), hardship distributions, corrective distributions of excess deferrals, dividends from employer securities and deemed distributions (Q&A 2).
IPRC treated as a plan distribution for limited purposes.
The taxable amount for an IPRC is the same amount that would be included in gross income if the rollover were made to a Roth IRA.
To be eligible for the two-year deferral period, the IPRC distribution must have been made no later than Dec.
The section 3405(c) 20% mandatory withholding requirement does not apply to an IPRC. Because the conversion is taxable, however, it will increase taxpayers' income for the year and might make it necessary to increase their withholding or make estimated tax payments to avoid an underpayment penalty.
For example, if a participant withdrew $6,000 allocable to an IPRC during the five-year period, the participant would be subject to $600 of additional tax unless an exception to section 72(t) applied.
A conversion to a Roth IRA can be recharacterized back to a qualified plan if the underlying assets perform poorly after the rollover, but an IPRC cannot.