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2011 Prior Contributions To Designated Roth 457(B)

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Designated 457(b) Roths were established in 2011, but my employer started providing this option on July 1, 2011.

 

Since the first 6 months contributions have not been noted on 2011 W2's, and perhaps other IRS forms, is it possible to re-characterize the prior 2011 457(b) contributions as Roth 457(b) contributions?

 

Thanks

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No, I don't think so.

 

The plan allows an employee to sign up for a salary deferral. Once the employee provides the instructions (a written deferral election) to the employer, the employer must follow the terms of the plan and withhold such deferrals exactly as the employee elected (subject to any plan limits or restrictions). If the instructions indicate that these were pre-tax deferrals, then the employer followed the instructions and did not violate the terms of the plan. Federal and State income tax withholding were also calculated for those paychecks based on pre-tax deferrals. Retroactive deferral changes are simply not allowed under the regulations (for many reasons).

 

Another note, however. If the employer knew it would be amending the plan sometime in 2011 to add Roth, and if they wanted Roth deferrals to be available for the whole year, they could have provided some type of new deferral form with Roth right away before the first January payroll, along with some written explanation to describe how Roth deferrals work. Then, as long as the amendment is adopted before the last day of the plan year, such amendment can retroactively add Roth to the plan. Of course, payroll and accounting would need to be ready to handle it as well. The plan would have a problem if the Roth amendment does not get done by the end of the year. I think most practitioners would recommend allowing Roth deferrals only after the amendment has been adopted.

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