Under the Small Business Jobs Act of 2010, since September 27 of this year, plans have been permitted in certain circumstances to allow participants (and beneficiaries who are surviving spouses) to convert their account balances (or portions of their account balances) to "Roth" accounts within the plan, much like conversion of a regular IRA to a Roth IRA. And, like an IRA conversion, the amount converted is taxable to the participant as if it had been rolled over to a Roth IRA, i.e., as if it had been distributed, and converted after-tax amounts, which would not be taxable on distribution, are not taxable on conversion. But, in order to be able to elect a conversion, the participant must be otherwise eligible to receive a distribution that would qualify as an "eligible rollover distribution", which raises certain questions concerning the application of the rules governing "eligible rollover distributions."

First, an "eligible rollover distribution," unless distributed in a direct rollover, is subject to mandatory 20% income tax withholding. Though the in-plan conversion is not an actual distribution, it is taxed as if it were distributed, as opposed to being non-taxable like a direct rollover. On the other hand, rather than actually being an "eligible rollover distribution", the amount converted is an amount that otherwise would have been able to be distributed as an "eligible rollover distribution." So is it subject to 20% withholding? Or any withholding at all?