Roth IRA Info

If an individual’s only participation in a retirement plan is through non-deductible designated Roth contributions to a designated Roth account, can the individual make a deductible IRA contribution regardless of the amount of income, or do the active participant rules apply?

Mon, 20 Sep 2010 00:53:23 +0000

You can contribute to a traditional IRA, up to the maximum IRA limit, whether or not you are an active participant in a plan. You will want to follow the rules of Code 219 to determine whether the individual con deduct a contribution to a traditional IRA. Whoever make a designated Roth contribution to a designated Roth 401(k) or 403(b) account is an active participant. Making decoctions to a traditional IRA depends on you modified adjusted gross income.

What point in time can employees start making designated Roth contributions to a designated Roth account?

Sun, 19 Sep 2010 22:34:53 +0000

Employees are allowed to make contributions to designated Roth 401(k) or 403(b) plans after December 31, but the person who owns this account must add this feature before the year ends, so it will be added the following year.

Are designated Roth 401(k) accounts included when determining whether a plan is top-heavy?

Sun, 19 Sep 2010 22:31:57 +0000

Yes, they are treated just like other elective deferral accounts and must be included when calculating the top-heavy ratio each year.

If an employee is required to take a corrective distribution from his or her 401(k) plan because the plan failed the ADP nondiscrimination test, can the employee take some or all of the corrective distribution from his or her designated Roth account?

Sun, 19 Sep 2010 22:31:19 +0000

Yes, a plan can provide a high compensation, with both traditional, pre-tax elective contributions and designated Roth contributions. During a year you may elect to attribute excess contributions to pre-tax elective or designated Roth contributions. The plan does not have to provide this option and may provide for correction without permitting an HCE to make this election.
A distribution of excess contributions is not included in gross income if it is a distribution of designated Roth contributions. However, the income allocatable to a corrective distribution of excess contributions that are designated Roth contributions is included in gross income in the same manner as income allocatable to a corrective distribution of excess contributions that are pre-tax elective contributions. The final Roth 401(k) regulations also provide a similar rule under the correction methods that a plan may use if it fails to satisfy the actual contribution percentage test.

Are an employee’s designated Roth contributions included in the 401(k) plan annual nondiscrimination testing?

Sun, 19 Sep 2010 22:29:57 +0000

Most defiantly, designated Roth contributions are treated the same as traditional, pre-tax elective contributions when performing annual nondiscrimination testing.

Since designated Roth contributions are already included as part of wages, tips & other compensation on Form W-2, must designated Roth contributions also be identified on Form W-2?

Sun, 19 Sep 2010 22:29:08 +0000

Yes, contributions to a designated Roth account must be reported separately on Form W–2,Wage and Tax Statement.

Do employees have any record keeping or reporting obligations?

You have no reporting obligation with designated Roth contributions in a 401(k) or 403(b) plan. But, if you are rolling over a distribution from a designated Roth account to a Roth IRA should keep track of the amount rolled over in accordance with the instructions for Form 8606.

Since a qualified distribution from a designated Roth account is not subject to taxation, must the distribution be reported?

Sun, 19 Sep 2010 22:27:48 +0000

Yes it is, and the distribution from a designated Roth account must be reported on a from (Form 1099-R).
If you have a direct rollover, your plan administrator is required to provide the plan administrator of the plan accepting an eligible rollover distribution, with your statement indicating either the first year of the 5-taxable-year period for you and the portion of such distribution attributable to basis or that the distribution is qualified distribution.
Other distributions the plan administrator will provide to you, upon request, the portion of the distribution attributable to basis or that the distribution is qualified. If you request this the employer is to provide it to you in a reasonable amount of time, but is cannot be longer than 30 days.

Who is responsible for keeping track of the designated Roth contributions and 5-taxable-year period?

Sun, 19 Sep 2010 22:27:12 +0000

You should have a plan administrator who is responsible for keeping track of the amount of designated Roth contributions and the date of the first designated Roth contributions, made by you and your fellow employees, for calculating your 5-taxable-year period. The plan administrator is responsible for rolling over a distribution and is required to provide the plan administrator of the recipient plan with a statement indication either the first year of the 5-taxable-year period for you and the portion of such distribution attributable to basis or if the distribution is a qualified distribution.

Are there any examples to help explain the rollover rules?

Sun, 19 Sep 2010 22:26:04 +0000

Yes, the following examples from the regulations under §402A illustrate the rollover rules.

Employee B receives a $14,000 eligible rollover distribution that is not a qualified distribution from B’s designated Roth account, consisting of $11,000 of investment in the contract and $3,000 of income. Within 60 days of receipt, Employee B rolls over $7,000 of the distribution into a Roth IRA. The $7,000 is deemed to consist of $3,000 of income and $4,000 of investment in the contract. Because the only portion of the distribution that could be included in gross income (the income) is rolled over, none of the distribution is included in Employee B’s gross income.
Employee C receives a $12,000 distribution, which is a qualified distribution that is attributable to the employee being disabled, from C’s designated Roth account. Immediately prior to the distribution, the account consisted of $21,850 of investment in the contract (i.e., designated Roth contributions) and $1,150 of income. For purposes of determining recovery of investment in the contract, the distribution is deemed to consist of $11,400 of investment in the contract [$12,000 × 21,850/(1,150 + 21,850)], and $600 of income [$12,000 × 1,150/(1,150 + 21,850)]. Immediately after the distribution, C’s designated Roth account consists of $10,450 of investment in the contract and $550 of income. This determination of the remaining investment in the contract will be needed if C subsequently is no longer disabled and takes a non-qualified distribution from the designated Roth account.

These examples are from IRS.gov

How is the 5-taxable-year period calculated when an employee rolls over a distribution from a designated Roth account in a 401(k) or 403(b) plan to a Roth IRA?

Sun, 19 Sep 2010 22:21:06 +0000

When you rollover a distribution from a designated Roth account in a 401(k) or 403(b) plan to a Roth IRA, the period that the rolled-over funds were designated Roth account does not count toward the 5-taxable-year period. If you have contributed to any Roth IRA in a prior year, the 5-taxable-year period fro determining qualified distributions from a Roth IRA is measured from the earlier contribution. If the earlier contributions were made more than 5 years ago and you are over 59 ½ the distribution amounts attributable to a rollover contribution from a designated Roth account would be qualified distribution from your Roth IRA.