Your employer has added a new feature to your retirement plan: in-plan Roth conversion. This notice describes the feature and how you can decide if it is appropriate for you.

What is it?

• Helpful context
  • Your retirement plan holds money in different “buckets” depending on how each dollar was taxed:
  • Pre-tax money went in before taxes were taken out. You’d generally owe taxes on it later, when you retire, reach your plan’s retirement age, or withdraw it.
  • Roth money was already taxed before it went in. Qualified withdrawals later, including any growth, may be able to be withdrawn tax-free.
    • (“Qualified” means withdrawals must meet certain requirements i.e. for Roth, over age 59.5 years of age and the account must be over 5 years old)
• An in-plan Roth conversion lets you move money from a non-Roth bucket (like your pre-tax balance) into the Roth bucket without the money ever leaving your plan. That’s what “in-plan” means: your money stays invested right where it is. Only its tax treatment changes.
• Your investments don’t change either. For example, if you have $5,000 in a particular fund, it moves over as $5,000 in that same fund, meaning nothing is sold or repurchased.

How does this benefit you?

The potential appeal is this: by moving money into the Roth bucket now, qualified withdrawals later, including growth, would be tax-free.

In general terms, a conversion means choosing to deal with the taxes sooner rather than later, in exchange for the possibility of tax-free qualified withdrawals down the road. Whether that trade-off makes sense for you depends entirely on your personal financial picture, including your current and expected future tax rates. It’s a decision worth thinking through carefully, and many people find it helpful to talk it over with a tax or financial advisor first. Vestwell does not provide legal or tax advice. Conversions can only be made from accounts that are 100% vested.

Frequently Asked Questions

Does it cost anything to convert? 

• No. There is no fee for the conversion itself.

How many times can I convert? 

• There’s no annual limit. You can make as many conversions as you’d like per year.

Can I convert just part of my balance, or does it have to be all of it?

• You can convert any amount you choose; a partial conversion is completely fine. You don't have to convert your entire pre-tax balance at once. Many people choose to convert smaller amounts over multiple years to manage the tax impact or as part of their own tax planning strategy.

Will converting change how my money is invested? 

• No. Your investments stay the same. Only the tax bucket changes.

Will I owe taxes when I convert? 

• Possibly. Converting pre-tax money is generally a taxable event, and you may receive a 1099-R tax form for amounts converted. How it affects you depends on your individual situation, so it’s a good idea to talk with a tax advisor. We’re not able to provide tax advice. Keep in mind that no taxes are withheld from the conversion itself. You'll owe any applicable taxes when you file your income tax return for that year.

When will I receive my 1099-R, and where will it be sent?

• If your conversion is a taxable event, you'll receive a Form 1099-R for tax reporting purposes. The form will be mailed to the address on file in your account by January 15 of the year following your conversion and should arrive no later than February 15. It will also be available for download in the Documents section of your participant portal by February 15.
• For example, if you completed your conversion in 2025, your Form 1099-R would be mailed by January 15, 2026, and would be available in your participant portal no later than February 15, 2026. To avoid delays, please make sure your mailing address is up to date in your account settings.

Will Vestwell withhold taxes from my conversion?

• No. Because the money stays inside your plan, no taxes are withheld at the time of conversion. You'll be responsible for accounting for any tax owed when you file your income tax return. A tax advisor can help you plan for this.

Does the converted amount count toward my annual contribution limit?

• No. In-plan Roth conversions are not new contributions. You're simply moving money that's already in the plan. They do not count against your annual IRS contribution limit ($24,500 in 2025 for most participants).

Do I need to be fully vested to convert?

• It depends on the funding source. Each funding source (or sub-account) in your plan is evaluated separately; the entire source must be 100% vested to be eligible for conversion. Partially vested sources are not eligible, even for the vested portion.
• Example: Your salary deferrals are always 100% vested and eligible. An employer match that is 60% vested is not eligible until it reaches 100% vesting.
• Please note: Employee contributions are always 100% vested.

What’s the “5-year” rule I’ve heard about? 

• Roth money generally needs to meet certain conditions before withdrawals can be fully tax-free. Regular Roth contributions share a single 5-year clock that starts with your first Roth deposit. Once that period has passed, qualifying withdrawals (including earnings) are tax-free.
• Converted amounts work differently: each conversion starts its own separate 5-year clock. If you withdraw a converted amount before its individual 5-year period is up, that portion could be subject to taxes and/or a penalty, which would show up on your tax form.
• This requirement comes from IRS rules and applies the same way regardless of plan. (It isn't something an employer can modify or opt into/out of.)
• A tax advisor can help you understand how this applies to your specific situation.

What is a “Mega Backdoor Roth”? Can I do it? 

• You may have heard about a more advanced strategy that combines after-tax contributions with Roth conversion called a “Mega Backdoor Roth”. It isn’t available yet, but it is coming soon. We’ll update this article when it’s available.
• In short, the Mega Backdoor Roth lets you contribute after-tax dollars beyond the standard annual 401(k) contribution limits and then convert those dollars to Roth, combining a higher contribution ceiling with the potential for tax-free growth. Your plan must have both after-tax contributions and in-plan Roth conversion enabled. Once after-tax contributions are available, we’ll notify you and update this article.