Benefits Handbook

A distribution from in-plan Roth conversion accounts is taxed in the same manner as a distribution from a Roth 401(k) account. You will not pay Federal or state taxes on investment earnings from the time of conversion if you take a "qualified" distribution. A qualified distribution must meet both of these conditions:

If these conditions are not met, taxes on the investment earnings may be due because the distribution is not qualified.

You pay no taxes on your contributions because they were made on an after-tax basis.

If your distribution is not qualified, you will not receive the Roth tax treatment on investment earnings as described above. You will need to pay income taxes on all investment earnings accrued after you made the in-plan Roth conversion. You must also pay the 10% Federal early withdrawal tax on all investment earnings if you are not at least age 59-1/2, disabled or deceased. In addition, if you take the distribution less than five years from the date you made the in-plan Roth conversion, you must pay the 10% Federal early withdrawal tax on the investment earnings converted which was waived at the time you made the in-plan Roth conversion.

The five-year period begins upon the earliest of the following: (i) your first Roth 401(k) contribution to the Plan, (ii) your first in-plan Roth conversion under the Plan, or (iii) your first Roth contribution to another employer's 401(k), section 403(b) or governmental section 457(b) plan if you made a direct rollover of Roth contributions from the other plan to this Plan.

For example, if you started making Roth 401(k) contributions in 2018 and you make an in-plan Roth conversion in 2023, the five-year period ends in 2023 (five years from 2018), the year you began making Roth 401(k) contributions). Similarly, if you made a direct rollover of Roth contributions from another plan to this Plan in 2018, you started making Roth 401(k) contributions to this Plan in 2019, and you make an in-plan Roth conversion under this Plan in 2023, the five-year period ends in 2023 (five years from 2018, the year of your Roth rollover). In these examples, because of your prior Roth 401(k) and/or Roth rollover contributions, your five-year period does not restart at the time of the in-plan Roth conversion.

In contrast, if you had not been making Roth 401(k) contributions (or Roth rollover contributions) and you make your first in-plan Roth conversion in 2023, the five-year period would start at the time of your in-plan Roth conversion and would end in 2028 (five years from 2023).

In the case of a distribution under the Plan to an alternate payee or Beneficiary, the age, death or disability of the participant are used to determine whether the distribution is qualified. The five taxable year period required for a qualified distribution under the Plan is based on the date of the participant's first Roth contribution or conversion (as described above) and is not recalculated if the participant dies or if a domestic relations order divides the participant's account.

If an alternate payee or beneficiary directly rolls over a distribution from a participant's account to a tax-qualified retirement plan maintained by the alternate payee or beneficiary's own employer (the "recipient plan"), the five year period for a qualified distribution from the alternate payee or beneficiary's account under the recipient plan begins on the earlier of (i) the date of the participant's first Roth contribution or conversion (as described above) or (ii) the date otherwise applicable to the beneficiary or alternate payee's Roth account under the recipient plan.

A qualified distribution from your in-plan Roth conversion accounts is fully excludable from gross income. To be a qualified distribution, (i) the distribution must be made after you reach age 59-1/2 or on account of disability or death and (ii) you must satisfy the required five taxable year period for a qualified distribution. The five-year period begins upon the earliest of the following: (i) your first Roth 401(k) contribution to the Plan, (ii) your first in-plan Roth conversion under the Plan, or (iii) your first Roth contribution to another employer's 401(k), section 403(b) or governmental section 457(b) plan if you made a direct rollover of Roth contributions from the other plan to this Plan.

If you leave the Company,

If the distribution of your in-plan Roth conversion accounts is not a "qualified distribution" and is not directly rolled over into another employer's tax-qualified plan or into your own Roth IRA, earnings attributed to your in-plan Roth conversion accounts are subject to mandatory 20% Federal income tax withholding. Furthermore, distributions made before age 59-1/2 may trigger an additional 10% Federal early withdrawal tax on those earnings. In addition, if you take the distribution less than five years from the date you made the in-plan Roth conversion, you must pay the 10% Federal early withdrawal tax on the investment earnings converted which was waived at the time you made the in-plan Roth conversion. Please consult your tax advisor for further details.