My question deals with companies that offer traditional 401(k) plans
for their employees.

I am a seasonal employee with my company (I work full time summers and
don't work at all the rest of the year), and I participate in their
401(k) plan. For the rest of the year I am a graduate student and I
make a meager stipend. Overall I have about $10,000 wiggle room
between my AGI and the 25% marginal tax bracket.

Since I am in a low tax bracket, I would like to convert my 401(k)
assets (roughly $35K) into a Roth account over the next several years,
paying all taxes out of pocket. I would only convert the amount that
would be taxed at the lower marginal bracket rate each year.

It will be a substantial boon for me to be able to convert my assets
to a Roth account, but I also don't want to hurt my relationship with
my company. Unfortunately, if I understand correctly, there is
currently no provision that would allow me to convert my existing
assets directly to a Roth 401(k), even if my company offers one. As I
understand it, I would have to terminate employment and rollover to a
traditional IRA, then to a Roth IRA.

Since I am looking to continue seasonal employment with the same
company, I don't want to burn bridges by asking to be terminated for
this very self-serving reason. As a side note, the company is a small,
family-owned business of about 35 employees. I often talk directly
with the president, owner, and owner's wife.

Here are my questions: 
1. Am I overlooking an obvious, easier, alternative solution to
convert my assets to a Roth account? Is there new legislation to allow
401(k) to Roth 401(k) conversions?
2. Does a company suffer when an employee terminates participation in
their plan and does a rollover of assets?
3. What would be the financial/paperwork/administrative burden to my
company if I ask them to temporarily terminate me, long enough for me
to rollover my assets, then rehire me?
4. Please comment on the ethical implications of my request.

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Clarification of Question by realitor-ga on 11 Sep 2006 21:03 PDT

I should also mention that I currently live in FL, so I also get the
benefit of having no state income tax, making this an even more ideal
opportunity. Not that I feel I have to justify my motives, but I'm
just trying to give potential researchers a flavor for how beneficial
this move could be, since I think that could be important to your
comments and answers.

Thanks

You're gonna get slammed by the penalties, and for no reason.

If by "penalties" you mean that I'd have to pay regular income taxes,
that's exactly the point.  I'd much rather pay just 15% in income tax
(which would amount to $5250 out of my savings to cover the transfer)
now and have tax free earnings when I retire in a higher tax bracket
(which, given my age and current amount of assets, I'm likely to do).

If you're referring to something other than just income tax, please
let me know, since that is the only "cost" that I'm aware of if I were
to do this.

Thanks.