McKay Hochman - Commentary

Commentary

Direct Rollover to Roth IRA February 21, 2008
The Pension Protection Act of 2006 permits the direct rollover of a qualified plan distributions to a Roth IRA for the first time in 2008. We had been awaiting IRS guidance on this transaction and have found that the IRS issued guidance recently by way of Publication 575. The following is directly from Publication 575. “Rollovers to Roth IRAs. After 2007, a participant can roll over distributions directly from a qualified retirement plan to a Roth IRA if, for the tax year of the distribution, both of the following requirements are met.
	a.	The participant’s modified adjusted gross income for Roth IRA purposes may not be more than $100,000, and
	b.	The participant is not a married individual filing a separate return.
The participant must include in his or her gross income distributions from a qualified retirement plan that would have had to be included in income if they had not rolled over into a Roth IRA. After-tax contributions are not taxed again. In addition, the 10% tax on early distributions does not apply. Any amount rolled over to a Roth IRA is subject to the same rules for converting a traditional IRA into a Roth IRA. (For more information, see Converting From Any Traditional IRA Into a Roth IRA in chapter 1 of Publication 590.)” Note: The participant must be made aware of the fact they will have to pay income taxes on the amount so rolled over to the Roth IRA. Thus, they will have to have additional resources available outside of the plan and IRA to cover those tax payments.




Back to Commentary Index