Principal Addresses Auto Rollover of Roth 401(k) Balances

August 22, 2006 ( - In anticipation of participants leaving small balances in their Roth 401(k) or 403(b) accounts when they terminate employment, the Principal Bank has introduced a Roth option for its Safe Harbor IRA.

According to the Principal announcement, the Roth option for the Principal Bank Safe Harbor IRA offers the following features:

  • Roth IRA with funds deposited in a Qualified Savings Account (since there’s no income limit on the establishment of the Roth 401(k), there’s no income limit on its conversion to a Roth IRA)
  • Competitive interest on all balances
  • FDIC insured up to $250,000 per depositor
  • Low annual fee of only $15 to be paid by the former employee
  • No cost to plan sponsor rolling over retirement funds
  • No transaction, investment or early surrender fees
  • Funds are liquid with transfers and/or distributions available as needed
  • Assistance from personal bankers via telephone 24/7/365

“Now that the new pension reform bill has been signed into law, making the Roth savings option permanent, we expect significantly more plan sponsors will add the feature. They will need a way to manage these accounts when their employees leave,” said Barrie Christman, president and CEO of Principal Bank, in the announcement. “The Roth IRA option … will allow plan sponsors to reduce plan administration costs by removing costly low-balance accounts from their plans. At the same time, this option will help employees continue to save for retirement by preserving the tax-advantaged status of their funds.”

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) requires that distributions of small amounts (between $1000 and $5000) left in 401(k) and 403(b) accounts when employees leave be automatically rolled into an IRA, unless the participant elects otherwise (See IRS, Treasury Issue Automatic Rollover Guidance ).