he Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (section 617) added a provision allowing IRC section 401(k) plan participants to designate part or all of their plan contributions as Roth 401(k) contributions. IRC section 402A—the new EGTRRA provision —is scheduled to become effective on January 1, 2006, for 401(k) plans that have been amended to allow such contributions.
Although contributions are not excluded from income, distributions will not be taxed, provided certain criteria are met. CPAs should become familiar with the law and with the proposed regulations, issued in March 2005, to advise employer or worker clients.
Second, contributions must be included in income at the time the employee would have received the funds had he or she not elected to contribute to the qualified Roth contribution program. Finally, deferred amounts must be maintained by the plan in a separate, designated Roth account.
NONTAXABILITY OF DISTRIBUTIONS
Distributions are required once an employee reaches 70 . However, Roth 401(k) plan assets can be rolled over into a Roth IRA, for which distributions are not mandatory, and the taxpayer still can make Roth IRA contributions.
For more information, see the Tax Clinic, edited by Mike Koppel, and “Employee Benefits & Pensions: Current Developments (Part II)” by Deborah Walker and Michael Haberman, both in the December 2005 issue of The Tax Adviser.
—Lesli S. Laffie, editor