The Internal Revenue Service has published a batch of rules that could affect financial services professionals who sell Roth account plans and professionals who help run the plans.
The final regulations, Designated Roth Accounts Under Section 402A, appear today in the Federal Register and are based on a draft that was exposed to public comment in January 2006.
The Roth accounts in retirement plans are accounts that permit workers to contribute after-tax income and later withdraw retirement income without paying any further federal income taxes.
In most cases, taxpayers must wait at least 5 years before they can begin taking tax-free distributions from the Roth accounts.
The final regulations deal with topics such as how to apply the 5-year rule for Roth account distributions, taxation of distributions that do not qualify for special tax breaks, and rollovers of Roth contributions to other retirement plans.
IRS officials say they have made several changes in the final regulations in response to public comments.
Roth account rules state, for example, that a Roth account can pay out qualified distributions after 5 taxable years, but only if the employees is 59.5 years old, dies or becomes disabled.
“In response to comments, these final regulations clarify that, in the case of distribution to an alternate payee or beneficiary, the age, death or disability of the participant are used to determine whether the distribution is qualified,” officials write in a preamble to the regulations. “The only exception is in the case of a rollover by an alternate payee or surviving spouse to a designated Roth account under a plan of his or her own employer.