Yes, this has been permissible for any 401(k) plan since 2010, including a self-directed 401(k). However, the key points are that the plan documents for the 401(k) must permit Roth accounts and the ability to convert funds into Roth dollars. If the plan does not permit it, the individual cannot convert. As the Trustee of your self-directed 401(k) plan, you have the ability to ensure that this provision is included in your plan documents.
In addition, all funds converted must be maintained and accounted for in a separately-designated Roth sub-account. Provided the assets have been in the account for at least 5 years and the participant is over the age of 59 1/2, all income and gains from the Roth sub-account will be distributed tax free.
Keep in mind that when executing a Roth conversion, you will be responsible for paying the tax on the conversion of these funds to Uncle Sam 🙂
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