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January 25, 2006
js-3086
Treasury and IRS Propose Rules Regarding Designated Roth Contributions
Today, the Treasury Department and the IRS issued proposed regulations under sections 402(g), 402A, 403(b), and 408A, regarding designated Roth contributions. Roth contributions were added to the Code by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and are effective for taxable years beginning after December 31, 2005. Designated Roth contributions allow for employees to designate all or a portion of their elective contributions under a section 401(k) plan of a section 403(b) annuity plan as Roth contributions. These contributions would receive tax treatment much like a Roth IRA contribution, meaning that they would be contributed from after-tax income but, later, "qualified distributions" of the contributions plus earnings would be completely tax-free.
These proposed regulations address issues with respect to designated Roth contributions not addressed in the final regulations under section 401(k) regarding section 402A that were published in the Federal Register on January 3, 2006 (71 FR 6), including the definition of a qualified distribution, the taxation of distributions of designated Roth contributions that are not qualified, coordination of designated Roth contributions and Roth IRAs and rules for Roth contributions under section 403(b) plans.
The text of the proposal regulations is attached.
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REPORTS