What is an employer-sponsored retirement plan-to-Roth IRA rollover?

Effective January 1, 2008, individuals may roll over pretax and after-tax employer-sponsored retirement plan assets to a Roth IRA. Individuals could roll over retirement plan assets only to other retirement plans or Traditional IRAs before January 1, 2008.

Like IRA conversions, if you roll over retirement plan assets to a Roth IRA (excluding designated Roth accounts in retirement plans), you must include the taxable portion of the distribution in your gross income. Once you roll over these assets to a Roth IRA, they continue to grow tax-deferred. If you meet the requirements for a qualified Roth IRA distribution, you may distribute the earnings tax-free. If you do not meet the requirements for a qualified Roth IRA distribution, you may owe tax or an IRS penalty tax on some or all of the assets.