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Key Tax Developments Affecting Retirees
Designated Roth Accounts
Taxable Qualified Rollover Distributions to a Designated Roth Account. – After September 27,
2010, a retiree may be able to make a “qualified rollover contribution” from a non-Roth account
to a Roth account in the same 401(k) or 403(b) plan (or after 2010 in an eligible state/local
government plan). However, the terms of the plan must permit such contributions. The
contributions are taxable as if the non-Roth account had distributed the funds to the retiree and
he or she had retained them. Fortunately, though, the penalty tax for premature distributions
does not apply.
As usual for tax-favored plans, neither a plan nor a retiree is required to pay tax currently on
income earned by a designated Roth account. In addition, however, “qualified" distributions
from the Roth account are not taxable. In many other respects, though, the rules governing a
Roth account are the same as those governing the plan of which it is part. (Small Business
Jobs Act of 2010, Pub. L. No. 111-240, § 2112.) See Chapter 7 of the treatise for a more
complete discussion of designated Roth accounts.
Designated Roth Accounts in Eligible State/Local Government Plans. – After 2010, a state or
local government employer may establish a designated Roth account as part of an eligible state
or local government plan. Specifically, the designated Roth account must be part of an existing
cash or deferred arrangement within the plan. As with such arrangements generally, a
participant in a Roth program may choose to take cash compensation or make elective
deferrals. The rules applicable to these Roth accounts are generally the same as those
applicable to Roth accounts in 401(k) plans and TSAs. (Small Business Jobs Act of 2010, Pub.
L. No. 111-240, § 2111; I.R.C. § 457.) See Chapter 7 of the treatise for a more complete
discussion of designated Roth accounts.
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Taxable Qualified Rollover Distributions to a Designated Roth Account. – After September 27,
2010, a retiree may be able to make a “qualified rollover contribution” from a non-Roth account
to a Roth account in the same 401(k) or 403(b) plan (or after 2010 in an eligible state/local
government plan). However, the terms of the plan must permit such contributions. The
contributions are taxable as if the non-Roth account had distributed the funds to the retiree and
he or she had retained them. Fortunately, though, the penalty tax for premature distributions
does not apply.
As usual for tax-favored plans, neither a plan nor a retiree is required to pay tax currently on
income earned by a designated Roth account. In addition, however, “qualified" distributions
from the Roth account are not taxable. In many other respects, though, the rules governing a
Roth account are the same as those governing the plan of which it is part. (Small Business
Jobs Act of 2010, Pub. L. No. 111-240, § 2112.) See Chapter 7 of the treatise for a more
complete discussion of designated Roth accounts.
Designated Roth Accounts in Eligible State/Local Government Plans. – After 2010, a state or
local government employer may establish a designated Roth account as part of an eligible state
or local government plan. Specifically, the designated Roth account must be part of an existing
cash or deferred arrangement within the plan. As with such arrangements generally, a
participant in a Roth program may choose to take cash compensation or make elective
deferrals. The rules applicable to these Roth accounts are generally the same as those
applicable to Roth accounts in 401(k) plans and TSAs. (Small Business Jobs Act of 2010, Pub.
L. No. 111-240, § 2111; I.R.C. § 457.) See Chapter 7 of the treatise for a more complete
discussion of designated Roth accounts.
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| Copyright © 2005-2012 by Vorris J. Blankenship All Rights Reserved |
The author intends that this website provide accurate and authoritative information on the subject matter
covered. However, the information provided on this website is not a substitute for the advice of an attorney,
accountant, or other professional; and the author is not offering legal, accounting, or other professional
advice. The material presented on this website is not intended for use, and may not be used, to avoid tax
penalties. If you need legal advice or other professional help, you should seek (from an independent
attorney, accountant, or other competent professional) advice based on your own particular circumstances.
covered. However, the information provided on this website is not a substitute for the advice of an attorney,
accountant, or other professional; and the author is not offering legal, accounting, or other professional
advice. The material presented on this website is not intended for use, and may not be used, to avoid tax
penalties. If you need legal advice or other professional help, you should seek (from an independent
attorney, accountant, or other competent professional) advice based on your own particular circumstances.