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NOTE: FINAL ROTH DISTRIBUTION REGULATIONS ISSUED
Rev. 03/09/06, E-mail Alert 2007-5

Click here for the New Chart of June 22, 2007

Proposed Regulations - Part Two
March 9, 2006

The IRS has issued proposed regulations on distributions, taxation, and reporting procedures for the new Roth 401(k) plan option. This second article deals with the rollover rules.

Roth Distribution Proposed Regulations
Highlights of the Rollover Rules

Caveat: These are proposed regulations and are not effective yet. This chart is subject to change when the final regulations are issued.

ORIGINATING PLAN: ROTH 401(K)
 
Direct Rollover to Roth 401(k)
Direct Rollover to Roth IRA
Participant Rollover to Roth 401(k) (within 60 days)
Participant Rollover to Roth IRA (within 60 days)
Ability to Move Roth Contribution
Y
Y
N
Y
Ability to Move Earnings on Roth Contribution
Y
Y
Y
Y*
Determination of the Five-Year-Taxable Period Rule

The five-year-taxable period starts on the earlier of: the first year of the five-year-period of the Roth contributions from the distributing plan,
or
the first year of the five-year-period for the Roth contributions made in the receiving plan.

Recipient Plan may separately account for Roth Rollover from Roth account in plan OR may combine and count the five years from the oldest start date.

Five-year-taxable periods are determined separately for Roth IRa and for rollover money from a Roth 401(k). If a qualified distribution is rolled in, it is treated as "basis" in the Roth IRA and then the ordering rules of Roth IRA apply.

Five-taxable-year period tracking begins with the start of the Roth IRA. So if a new Roth IRa, then five-years starts at the that time.

The five-year-taxable period starts on the first year of the five-year-period for the Roth contributions made in the receiving plan. The five-year-taxable period from the distributing plan is not brought over to the recipient plan.

Five-taxable-year periods are determined separately for Roth IRA and for rollover money from a Roth 401(k).
If a qualified distribution is rolled in, it is treated as "basis" in the Roth IRa and then the ordering rules of Roth IRA apply.

Five-year-taxable period tracking begins with the start of the Roth IRA. So if a new Roth IRA, then five-years starts at that time.
Reporting Roth Amount, Earnings and the Beginning date of the five-year-taxable period Information, or if a qualified distribution to be provided within 30 days of the Direct Rollover. Roth Amount, Earnings and the Beginning date of the five-year-taxable period Information, or if a qualified distribution to be provided within 30 days of the Direct Rollover. Earnings and the beginning date of the five-year-taxable period Information and if a qualified distribution to be provided upon request of participant within 30 days. Roth amount, Earnings and the beginning date of the five-year-taxable period Information and if a qualified distribution to be provided upon request of participant within 30 days.
Other This is the exclusive method to move the after tax portion of the Roth 401(k) to another Roth 401(k). The AGI limitation for eligibility for a Roth IRA contribution does not apply to the ability to a Roth 401(k) into a Roth IRA. A non-qualified distribution of a Roth 401(k) requires a pro rata distribution of earnings and after-tax amounts. The AGI limitation for eligibility for a Roth IRA contribution does not apply to the ability to roll a Roth 401(k) into a Roth IRA.
* If a partial rollover, then taxable portion of non-qualified distribution is rolled in first.
OTHER ROLLOVER ISSUES FROM THE PROPOSED REGS.
Restriction on Roth IRA
403(b) Plan Rollovers
A Roth IRA may not be rolled into a Roth 401(k) or a Roth 403(b).

The rules applicable to rolling Roth 403(b) to another Roth 403(b) or to a Roth IRA are similar to the Roth 401(k) rules.

There is no direct rollover from a Roth 403(b) to a Roth 401(k) or vice versa. Though the EGTRRA rules permit portability between non-Roth 401(k) and non-Roth 403(b) accounts, that was only for pre-tax amounts.

Proposed Roth Distribution Regulations

Part One Article on Roth 401(k) Prop. Reg.

Roth 401(k) Final Regulations.

 

 

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