The Internal Revenue Service has released a draft of regulations that could help sponsors and administrators manage the new Roth retirement accounts.
The draft regulations, published today in the Federal Register, deal with topics such as the taxation of Roth 401(k) plan and Roth 403(b) plan accounts.
One section of the preamble to the draft regulations discusses rollovers of Roth retirement plan account assets into Roth individual retirement accounts.
The Internal Revenue Code sections that govern Roth IRAs and Roth 401(k) accounts let taxpayers fund the accounts with income that already has been taxed. In exchange, the government promises not to impose additional taxes on qualified distributions.
A Roth IRA holder who keeps the money in the account at least 5 years can use distributions to pay some expenses, such as the holder’s first purchase of a home, without paying penalties or taxes on the account earnings.
Roth 401(k) account holders also can take tax-free withdrawals after 5 years if they reach age 59.5, die or become disabled.
What happens to the 5-year rule if a Roth 401(k) account holder rolls account distributions into a Roth IRA?