Plan sponsors need to review their 401(k) plan to determine that the plan is appropriate. There is also an imperative need to educate their employees on any tax changes. Plan sponsors fiduciary responsibilities and risks will be taking center stage for some time.

The new rules become effective Jan. 1, 2013, but you can transfer amounts contributed to pre-tax accounts in 2012 and earlier. So say you had made pre-tax 401(k) contributions over the years before your employer started offering the Roth 401(k) option. You could convert the pre-tax contributions and any earnings and any employer match, so that your whole account is Rothified. Going forward you could then make contributions earmarked directly to the Roth 401(k) account.The strategy is much like converting a traditional pre-tax IRA to a Roth IRA, a move savvy taxpayers make who think it’s worth paying taxes now—at historically low rates—rather than later. You pay income tax on the amount you convert. The Roth grows tax free and eventual distributions are tax free. A Roth conversion makes sense if you expect your tax rate to be the same or higher in retirement and won’t need the funds for a decade or more. It’s also an attractive way to leave an income-tax-free inheritance to your kids or grandkids.

“It’s a huge opportunity for younger workers who have the cash on hand to pay the conversion tax,” says Urwitz. For employees who have larger pretax balances, they can convert part of the 401(k) at a time. The longer the money has to grow, the more likely it is that the conversion will be worthwhile.

Plan participants should check with their employer to determine whether the Roth option is available. The next step would be to seek the advice of a financial professional. Preferably an independent fiduciary. If your employer provides such advice take advantage of it, if not seek outside guidance.

Please comment or call to discuss how this affects you and your financial future.