Blogging Employee Benefits

January 9, 2006

Final Roth 401(k) Regs

Filed under: 401(k), IRS, Regulations — Fuguerre @ 1:14 pm

Final regulations have been published regarding Roth 401(k) accounts, permissible beginning January 1 of this year. [Press Release js-3068 (12/30/05); Text of regulation 1.401(k)-1(f)] Roth 401(k) contributions, authorized under IRC 402A as added by EGTRRA, are currently included in the individual’s taxable income; but qualified distributions of designated Roth contributions are tax-free. 401(k) plans may permit Roth 401(k) contributions beginning January 1, 2006. Unless the EGTRRA sunset is extended, Roth 401(k) contributions would not be permitted after December 31, 2010.

Highlights of the final regulations –

  • No Roth-Only 401(k) Plans.  Designation of Roth 401(k) contributions can be made only under a 401(k) plan that also permits the individual to make pre-tax 401(k) elective deferrals. The employer may not establish a plan under which only Roth 401(k) contributions are made. [Reg.1.401(k)-1(f)(1)(i)]
  • Automatic Enrollment. If a 401(k) plan includes both an automatic enrollment feature and Roth 401(k) accounts, then the plan terms must specify the extent to which default contributions are characterized as either elective deferrals or as designated Roth 401(k) contributions. [Reg.1.401(k)-1(f)(4)(ii)]
  • Separate Roth 401(k) Account. No forfeitures, matching employer contributions, elective deferrals, or other contributions (other than rollover contributions from other Roth 401(k) accounts) may be allocated to the separate account that is maintained for the designated Roth 401(k) contributions. [Reg.1.401(k)-1(f)(2)]
  • Minimum Required Distributions. Roth 401(k) accounts are subject to the minimum distribution requirements of IRC 401(a)(9) in the same manner as 401(k) elective deferrals. [Reg.1.401(k)-1(f)(3)(i)]
  • Direct Rollovers. A plan may treat a Roth 401(k) account as though it were a separate plan from non-Roth amounts for purposes of applying the rule under which the plan may preclude direct rollover of amounts less than $200. [Reg.1.401(k)-1(f)(3)(ii)]
  • Corrective Distributions. A 401(k) may allow highly compensated employees to allocate corrective distributions between a Roth 401(k) account and non-Roth amounts. [Reg.1.401(k)-2(b)(1)(ii)]

1 Comment »

  1. […] The IRS has proposed regulations regarding the taxation of distributions from Roth 401(k) accounts. The proposed regulations also address Roth 401(k) reporting requirements and designated Roth contributions in 403(b) plans.  [71 FR 4320, REG-146459-05]  Final regulations covering the basic rules for Roth 401(k) accounts were issued earlier this year. (See BeneBlog 1/9/06.) […]

    Pingback by BeneBlog » Blog Archive » Rules for Roth 401(k) Distributions — January 26, 2006 @ 6:34 am

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