§402A — Optional treatment of elective deferrals as Roth contributions
Statute Text — 26 U.S.C. §402A
If an applicable retirement plan includes a qualified Roth contribution program—
any designated Roth contribution made by an employee pursuant to the program shall be treated as an elective deferral for purposes of this chapter, except that such contribution shall not be excludable from gross income,
any designated Roth contribution which pursuant to the program is made by the employer on the employee’s behalf on account of the employee’s contribution, elective deferral, or (subject to the requirements of section 401(m)(13)) qualified student loan payment shall be treated as a matching contribution for purposes of this chapter, except that such contribution shall not be excludable from gross income,
any designated Roth contribution which pursuant to the program is made by the employer on the employee’s behalf and which is a nonelective contribution shall be nonforfeitable and shall not be excludable from gross income, and
such plan (and any arrangement which is part of such plan) shall not be treated as failing to meet any requirement of this chapter solely by reason of including such program.
For purposes of this section—
The term “qualified Roth contribution program” means a program under which an employee may elect to make, or to have made on the employee’s behalf, designated Roth contributions in lieu of all or a portion of elective deferrals the employee is otherwise eligible to make, or of matching contributions or nonelective contributions which may otherwise be made on the employee’s behalf, under the applicable retirement plan.
A program shall not be treated as a qualified Roth contribution program unless the applicable retirement plan—
establishes separate accounts (“designated Roth accounts”) for the designated Roth contributions of each employee and any earnings properly allocable to the contributions, and
maintains separate recordkeeping with respect to each account.
For purposes of this section—
The term “designated Roth contribution” means any elective deferral, matching contribution, or nonelective contribution which—
is excludable from gross income of an employee without regard to this section, and
the employee designates (at such time and in such manner as the Secretary may prescribe) as not being so excludable.
The amount of elective deferrals which an employee may designate under paragraph (1) shall not exceed the excess (if any) of—
the maximum amount of elective deferrals excludable from gross income of the employee for the taxable year (without regard to this section), over
the aggregate amount of elective deferrals of the employee for the taxable year which the employee does not designate under paragraph (1).
A rollover contribution of any payment or distribution from a designated Roth account which is otherwise allowable under this chapter may be made only if the contribution is to—
another designated Roth account of the individual from whose account the payment or distribution was made, or
a Roth IRA of such individual.
Any rollover contribution to a designated Roth account under subparagraph (A) shall not be taken into account for purposes of paragraph (1).
Notwithstanding sections 402(c), 403(b)(8), and 457(e)(16), in the case of any distribution to which this paragraph applies—
there shall be included in gross income any amount which would be includible were it not part of a qualified rollover contribution,
section 72(t) shall not apply, and
unless the taxpayer elects not to have this clause apply, any amount required to be included in gross income for any taxable year beginning in 2010 by reason of this paragraph shall be so included ratably over the 2-taxable-year period beginning with the first taxable year beginning in 2011.
Any election under clause (iii) for any distributions during a taxable year may not be changed after the due date for such taxable year.
In the case of an applicable retirement plan which includes a qualified Roth contribution program, this paragraph shall apply to a distribution from such plan other than from a designated Roth account which is contributed in a qualified rollover contribution (within the meaning of section 408A(e)) to the designated Roth account maintained under such plan for the benefit of the individual to whom the distribution is made.
Any distribution to which this paragraph applies shall not be taken into account for purposes of paragraph (1).
The rules of subparagraphs (D), (E), and (F) of section 408A(d)(3) (as in effect for taxable years beginning after 2009) shall apply for purposes of this paragraph.
In the case of an applicable retirement plan which includes a qualified Roth contribution program—
the plan may allow an individual to elect to have the plan transfer any amount not otherwise distributable under the plan to a designated Roth account maintained for the benefit of the individual,
such transfer shall be treated as a distribution to which this paragraph applies which was contributed in a qualified rollover contribution (within the meaning of section 408A(e)) to such account, and
the plan shall not be treated as violating the provisions of section 401(k)(2)(B)(i), 403(b)(7)(A)(ii),
1
1 See References in Text note below.
403(b)(11), or 457(d)(1)(A), or of
section 8433 of title 5
, United States Code, solely by reason of such transfer.
For purposes of this title—
Any qualified distribution from a designated Roth account shall not be includible in gross income.
For purposes of this subsection—
The term “qualified distribution” has the meaning given such term by section 408A(d)(2)(A) (without regard to clause (iv) thereof).
A payment or distribution from a designated Roth account shall not be treated as a qualified distribution if such payment or distribution is made within the 5-taxable-year period beginning with the earlier of—
the first taxable year for which the individual made a designated Roth contribution to any designated Roth account established for such individual under the same applicable retirement plan, or
if a rollover contribution was made to such designated Roth account from a designated Roth account previously established for such individual under another applicable retirement plan, the first taxable year for which the individual made a designated Roth contribution to such previously established account.
The term “qualified distribution” shall not include any distribution of any excess deferral under section 402(g)(2) or any excess contribution under section 401(k)(8), and any income on the excess deferral or contribution.
Notwithstanding section 72, if any excess deferral under section 402(g)(2) attributable to a designated Roth contribution is not distributed on or before the 1st April 15 following the close of the taxable year in which such excess deferral is made, the amount of such excess deferral shall—
not be treated as investment in the contract, and
be included in gross income for the taxable year in which such excess is distributed.
Section 72 shall be applied separately with respect to distributions and payments from a designated Roth account and other distributions and payments from the plan.
Notwithstanding sections 403(b)(10) and 457(d)(2), the following provisions shall not apply to any designated Roth account:
Section 401(a)(9)(A).
The incidental death benefit requirements of section 401(a).
An applicable retirement plan—
may—
include a pension-linked emergency savings account established pursuant to section 801 of the Employee Retirement Income Security Act of 1974, which, except as otherwise provided in this subsection, shall be treated for purposes of this title as a designated Roth account, and
either—
offer to enroll an eligible participant in such pension-linked emergency savings account, or
automatically enroll an eligible participant in such account pursuant to an automatic contribution arrangement described in paragraph (4), and
shall—
separately account for contributions to such account and any earnings properly allocable to the contributions,
maintain separate recordkeeping with respect to each such account, and
allow withdrawals from such account in accordance with paragraph (7).
For purposes of this subsection, the term “eligible participant”, with regard to a defined contribution plan, means an individual, without regard to whether the individual is otherwise a participant in such plan, who—
meets any age, service, and other eligibility requirements of the plan, and
is not a highly compensated employee (as defined in section 414(q)).
Notwithstanding subparagraph (A)(ii), an individual on whose behalf a pension-linked emergency savings account is established who thereafter becomes a highly compensated employee (as so defined) may not make further contributions to such account, but retains the right to withdraw any account balance of such account in accordance with paragraphs (7) and (8).
Subject to subparagraph (B), no contribution shall be accepted to a pension-linked emergency savings account to the extent such contribution would cause the portion of the account balance attributable to participant contributions to exceed the lesser of—
$2,500; or
an amount determined by the plan sponsor of the pension-linked emergency savings account.
In the case of contributions made in taxable years beginning after
December 31, 2024
, the Secretary shall adjust the amount under clause (i) at the same time and in the same manner as the adjustment made under section 415(d), except that the base period shall be the calendar quarter beginning
July 1, 2023
. Any increase under the preceding sentence which is not a multiple of $100 shall be rounded to the next lowest multiple of $100.
To the extent any contribution to the pension-linked emergency savings account of a participant for a taxable year would exceed the limitation of subparagraph (A)—
in the case of an eligible participant with another designated Roth account under the defined contribution plan, the plan may provide that—
the participant may elect to increase the participant’s contribution to such other account, and
in the absence of such a participant election, the participant is deemed to have elected to increase the participant’s contributions to such account at the rate at which contributions were being made to the pension-linked emergency savings account, and
in any other case, such plan shall provide that such excess contributions will not be accepted.
For purposes of this section—
An automatic contribution arrangement described in this paragraph is an arrangement under which an eligible participant is treated as having elected to have the plan sponsor make elective contributions to a pension-linked emergency savings account at a participant contribution rate that is not more than 3 percent of the compensation of the eligible participant, unless the eligible participant, at any time (subject to such reasonable advance notice as is required by the plan administrator), affirmatively elects to—
make contributions at a different rate, or
opt out of such contributions.
For purposes of an automatic contribution arrangement described in subparagraph (A), the plan sponsor—
shall select a participant contribution rate under such automatic contribution arrangement which meets the requirements of subparagraph (A), and
may amend such rate (prior to the plan year for which such amendment would take effect) not more than once annually.
With respect to a defined contribution plan which includes a pension-linked emergency savings account, the administrator of the plan shall, not less than 30 days and not more than 90 days prior to the date of the first contribution to the pension-linked emergency savings account, including any contribution under an automatic contribution arrangement described in section 801(d)(2) of the Employee Retirement Income Security Act of 1974, or the date of any adjustment to the participant contribution rate under section 801(d)(2)(B)(ii) of such Act, and not less than annually thereafter, shall furnish to the participant a notice describing—
the purpose of the account, which is for short-term, emergency savings;
the limits on, and tax treatment of, contributions to the pension-linked emergency savings account of the participant;
any fees, expenses, restrictions, or charges associated with such pension-linked emergency savings account;
procedures for electing to make contributions or opting out of the pension-linked emergency savings account, changing participant contribution rates for such account, and making participant withdrawals from such pension-linked emergency savings account, including any limits on frequency;
the amount of the intended contribution or the change in the percentage of the compensation of the participant of such contribution, if applicable;
the amount in the pension-linked emergency savings account and the amount or percentage of compensation that a participant has contributed to such account;
the designated investment option under section 801(c)(1)(A)(iii) of the Employee Retirement Income Security Act of 1974 for amounts contributed to the pension-linked emergency savings account;
the options under section 801(e) of such Act for the account balance of the pension-linked emergency savings account after termination of the employment of the participant; and
the ability of a participant who becomes a highly compensated employee (as such term is defined in section 414(q)) to, as described in section 801(b)(2) of the Employee Retirement Income Security Act of 1974, withdraw any account balance from a pension-linked emergency savings account and the restriction on the ability of such a participant to make further contributions to the pension-linked emergency savings account.
A notice furnished to a participant under subparagraph (A) shall be—
sufficiently accurate and comprehensive to apprise the participant of the rights and obligations of the participant with regard to the pension-linked emergency savings account of the participant; and
written in a manner calculated to be understood by the average participant.
The required notices under subparagraph (A) may be included with any other notice under the Employee Retirement Income Security Act of 1974, including under section 404(c)(5)(B) or 514(e)(3) of such Act, or under section 401(k)(13)(E) or 414(w)(4), if such other notice is provided to the participant at the time required for such notice.
If an employer makes any matching contributions to a defined contribution plan of which a pension-linked emergency savings account is part, subject to the limitations of paragraph (3), the employer shall make matching contributions on behalf of an eligible participant on account of the participant’s contributions to the pension-linked emergency savings account at the same rate as any other matching contribution on account of an elective contribution by such participant. The matching contributions shall be made to the participant’s account under the defined contribution plan which is not the pension-linked emergency savings account. Such matching contributions on account of contributions to the pension-linked emergency savings account shall not exceed the maximum account balance under paragraph (3)(A) for such plan year.
For purposes of any applicable limitation on matching contributions, any matching contributions made under the plan shall be treated first as attributable to the elective deferrals of the participant other than contributions to a pension-linked emergency savings account.
For purposes of subparagraph (A), the term “matching contribution” has the meaning given such term in section 401(m)(4).
A pension-linked emergency savings account shall allow for withdrawal by the participant on whose behalf the account is established of the account balance, in whole or in part at the discretion of the participant, at least once per calendar month and for distribution of such withdrawal to the participant as soon as practicable after the date on which the participant elects to make such withdrawal.
Any distribution from a pension-linked emergency savings account in accordance with subparagraph (A)—
shall be treated as a qualified distribution for purposes of subsection (d), and
shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 457(d)(1)(A).
Upon termination of employment of the participant, or termination by the plan sponsor of the pension-linked emergency savings account, the pension-linked emergency savings account of such participant in a defined contribution plan shall—
allow, at the election of the participant, for transfer by the participant of the account balance of such account, in whole or in part, into another designated Roth account of the participant under the defined contribution plan; and
for any amounts in such account not transferred under paragraph (1), make such amounts available within a reasonable time to the participant.
No amounts shall be transferred by the participant from another account of the participant under any plan of the employer into the pension-linked emergency savings account of the participant.
Subparagraph (F) of section 408A(d)(3) shall not apply (including by reason of subsection (c)(4)(D) of this section) to any rollover contribution of amounts in a pension-linked emergency savings account under subparagraph (A).
If any excess deferrals are distributed under section 402(g)(2)(A) to a participant, such amounts shall be distributed first from any pension-linked emergency savings account of the participant to the extent contributions were made to such account for the taxable year.
Except as provided in subparagraph (B), a distribution from a pension-linked emergency savings account shall not be treated as an eligible rollover distribution for purposes of sections 401(a)(31), 402(f), and 3405.
In the case of termination of employment of the participant, or termination by the plan sponsor of the pension-linked emergency savings account, except for purposes of 401(a)(31)(B), a distribution from a pension-linked emergency savings account which is contributed as provided in paragraph (8)(A)(i) shall be treated as an eligible rollover distribution.
Notwithstanding section 411(d)(6), a plan which includes a pension-linked emergency savings account may cease to offer such accounts at any time.
A plan of which a pension-linked emergency savings account is part—
may employ reasonable procedures to limit the frequency or amount of matching contributions with respect to contributions to such account, solely to the extent necessary to prevent manipulation of the rules of the plan to cause matching contributions to exceed the intended amounts or frequency, and
shall not be required to suspend matching contributions following any participant withdrawal of contributions, including elective deferrals and employee contributions, whether or not matched and whether or not made pursuant to an automatic contribution arrangement described in paragraph (4).
The Secretary, in consultation with the Secretary of Labor, shall issue regulations or other guidance not later than 12 months after the date of the enactment of the SECURE 2.0 Act of 2022 with respect to the anti-abuse rules described in the preceding sentence.
For purposes of this section—
The term “applicable retirement plan” means—
an employees’ trust described in section 401(a) which is exempt from tax under section 501(a),
a plan under which amounts are contributed by an individual’s employer for an annuity contract described in section 403(b), and
an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A).
The term “elective deferral” means—
any elective deferral described in subparagraph (A) or (C) of section 402(g)(3), and
any elective deferral of compensation by an individual under an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A).
The term “matching contribution” means—
any matching contribution described in section 401(m)(4)(A), and
any contribution to an eligible deferred compensation plan (as defined in section 457(b)) by an eligible employer described in section 457(e)(1)(A) on behalf of an employee and on account of such employee’s elective deferral under such plan,
but only if such contribution is nonforfeitable at the time received.
Treasury Regulations
-
Treas. Reg. §1.402A-1Designated Roth Accounts
Q-1. What is a designated Roth account?
A-1. A designated Roth account is a separate account under a qualified cash or deferred arrangement under a section 401(a) plan, or under a section 403(b) plan, to which designated Roth contributions are permitted to be made in lieu of elective contributions and that satisfies the requirements of § 1.401(k)-1(f) (in the case of a section 401(a) plan) or § 1.403(b)-3(c) (in the case of a section 403(b) plan).
Q-2. How is a distribution from a designated Roth account taxed?
A-2. (a) The taxation of a distribution from a designated Roth account depends on whether or not the distribution is a qualified distribution. A qualified distribution from a designated Roth account is not includible in the distributee's gross income.
(b) Except as otherwise provided in paragraph (c) of this A-2, a qualified distribution is a distribution that is both—
(1) Made after the 5-taxable-year period of participation defined in A-4 of this section has been completed; and
(2) Made on or after the date the employee attains age 59
1/2, made to a beneficiary or the estate of the employee on or after the employee's death, or attributable to the employee's being disabled within the meaning of section 72(m)(7).
(c) A distribution from a designated Roth account is not a qualified distribution to the extent it consists of a distribution of excess deferrals and attributable income described in § 1.402(g)-1(e). See A-11 of this section for other amounts that are not treated as qualified distributions, including excess contributions described in section 401(k)(8), and excess aggregate contributions described in section 401(m)(8), and income, on any of these excess amounts.
Q-3. How is a distribution from a designated Roth account taxed if it is not a qualified distribution?
A-3. Except as provided in A-11 of this section, a distribution from a designated Roth account that is not a qualified distribution is taxable to the distributee under section 402 in the case of a plan qualified under section 401(a) and under section 403(b)(1) in the case of a section 403(b) plan. For this purpose, a designated Roth account is treated as a separate contract under section 72. Thus, except as otherwise provided in A-5 of this section for a rollover, if a distribution is before the annuity starting date, the portion of any distribution that is includible in gross income as an amount allocable to income on the contract and the portion not includible in gross income as an amount allocable to investment in the contract is determined under section 72(e)(8), treating the designated Roth account as a separate contract. Similarly, in the case of any amount received as an annuity, if a distribution is on or after the annuity starting date, the portion of any annuity payment that is includible in gross income as an amount allocable to income on the contract and the portion not includible in gross income as an amount allocable to investment in the contract is determined under section 72(b) or (d), as applicable, treating the designated Roth account as a separate contract. For purposes of section 72, designated Roth contributions are described in section 72(f)(1) or 72(f)(2), to the extent applicable.
Q-4. What is the 5-taxable-year period of participation described in A-2 of this section?
A-4. (a) The 5-taxable-year period of participation described in A-2 of this section for a plan is the period of 5 consecutive taxable years that begins with the first day of the first taxable year in which the employee makes a designated Roth contribution to any designated Roth account established for the employee under the same plan and ends when 5 consecutive taxable years have been completed. For this purpose, the first taxable year in which an employee makes a designated Roth contribution is the year in which the amount is includible in the employee's gross income. Notwithstanding the preceding, however, a contribution that is returned as an excess deferral or excess contribution does not begin the 5 taxable-year period of participation. Similarly, a contribution returned as a permissible withdrawal under section 414(w) does not begin the 5 taxable-year period of participation.
(b) Generally, an employee's 5-taxable-year period of participation is determined separately for each plan (within the meaning of section 414(l)) in which the employee participates. Thus, if an employee has elective deferrals made to designated Roth accounts under two or more plans, the employee may have two or more different 5-taxable-year periods of participation, depending on when the employee first had contributions made to a designated Roth account under each plan. However, if a direct rollover contribution of a distribution from a designated Roth account under another plan is made by the employee to the plan, the 5-taxable-year period of participation begins on the first day of the employee's taxable year in which the employee first had designated Roth contributions made to such other designated Roth account, if earlier than the first taxable year in which a designated Roth contribution is made to the plan. See A-5(c) of this section for additional rules on determining the start of the 5-taxable-year of participation in the case of an indirect rollover.
(c) The beginning of the 5-taxable-year period of participation is not redetermined for any portion of an employee's designated Roth account. This is true even if the entire designated Roth account is distributed during the 5-taxable-year period of participation and the employee subsequently makes additional designated Roth contributions under the plan.
(d) The rule in paragraph (c) of this section applies if the employee dies or the account is divided pursuant to a qualified domestic relations order (QDRO), and thus, a portion of the account is not payable to the employee and is payable to the employee's beneficiary or an alternate payee. In the case of distribution to an alternate payee or beneficiary, generally, the age, death, or disability of the employee is used to determine whether the distribution to an alternate payee or beneficiary is qualified. However, if an alternate payee or a spousal beneficiary rolls the distribution into a designated Roth account in a plan maintained by his or her own employer, such individual's age, disability, or death is used to determine whether a distribution from the recipient plan is qualified. In addition, if the rollover is a direct rollover contribution to the alternate payee's or spousal beneficiary's own designated Roth account, the 5-taxable-year period of participation under the recipient plan begins on the earlier of the date the employee's 5-taxable-year period of participation began under the distributing plan or the date the 5-taxable-year period of participation applicable to the alternate payee's or spousal beneficiary's designated Roth account began under the recipient plan.
(e) If a designated Roth contribution is made by a reemployed veteran for a year of qualified military service pursuant to section 414(u) that is before the year in which the contribution is actually made, the contribution is treated as having been made in the year of qualified military service to which the contribution relates, as designated by the reemployed veteran. Reemployed veterans may identify the year of qualified military service for which a contribution is made for other purposes, such as for entitlement to a match, and the treatment for the 5-taxable-year period of participation rule follows that identification. In the absence of such designation, for purposes of determining the first year of the five years of participation under section 402A(d)(2)(B), the contribution is treated as relating to the first year of qualified military service for which the reemployed veteran could have made designated Roth contributions under the plan, or if later the first taxable year in which designated Roth contributions could be made under the plan.
Q-5. How do the taxation rules apply to a distribution from a designated Roth account that is rolled over?
A-5. (a) An eligible rollover distribution from a designated Roth account is permitted to be rolled over into another designated Roth account or a Roth IRA, and the amount rolled over is not currently includible in gross income.
In accordance with section 402(c)(2), to the extent that a portion of a distribution from a designated Roth account is not includible in income (determined without regard to the rollover), if that portion of the distribution is to be rolled over into a designated Roth account, the rollover must be accomplished through a direct rollover (i.e., a 60-day rollover to another designated Roth account is not available for this portion of the distribution).
If a distribution from a designated Roth account is instead made to the employee, the employee would still be able to roll over the entire amount (or any portion thereof) into a Roth IRA within the 60-day period described in section 402(c)(3). For distributions made prior to January 1, 2016, any amount paid in a direct rollover is treated as a separate distribution from any amount paid directly to the employee, except that taxpayers may choose not to apply this sentence to distributions made on or after September 18, 2014, and before January 1, 2016.
(b) In the case of an eligible rollover distribution from a designated Roth account that is not a qualified distribution and not paid as a direct rollover contribution, if less than the entire amount of the distribution is rolled over, the part that is rolled over is deemed to consist first of the portion of the distribution that is attributable to income under section 72(e)(8).
(c) If an employee receives a distribution from a designated Roth account, the portion of the distribution that would be includible in gross income is permitted to be rolled over into a designated Roth account under another plan. In such a case, § 1.402A-2, A-3, provides for additional reporting by the recipient plan. In addition, the employee's period of participation under the distributing plan is not carried over to the recipient plan for purposes of satisfying the 5-taxable-year period of participation requirement under the recipient plan. Generally, the taxable year in which the recipient plan accepts such rollover contribution is the taxable year that begins the participant's new 5-taxable-year period of participation. However, if the participant is rolling over to a plan in which the participant already has a pre-existing designated Roth account with a longer period of participation, the starting date of the recipient account is used to measure the participant's 5-taxable-year period of participation.
(d) The following example illustrates the application of this A-5:
(e) This A-5 applies for taxable years beginning on or after January 1, 2006.
Q-6. In the case of a rollover contribution to a designated Roth account, how is the amount that is treated as investment in the contract under section 72 determined?
A-6. (a) If a distribution from a designated Roth account is rolled over to another designated Roth account in a direct rollover, the amount of the rollover contribution allocated to investment in the contract in the recipient designated Roth account is the amount that would not have been includible in gross income (determined without regard to section 402(e)(4)) if the distribution had not been rolled over. Thus, if an amount that is a qualified distribution is rolled over, the entire amount of the rollover contribution is allocated to investment in the contract.
(b) If the entire account balance of a designated Roth account is rolled over to another designated Roth account in a direct rollover, and, at the time of the distribution, the investment in the contract exceeds the balance in the designated Roth account, the investment in the contract in the distributing plan is included in the investment in the contract of the recipient plan.
Q-7. After a qualified distribution from a designated Roth account has been made, how is the remaining investment in the contract of the designated Roth account determined under section 72?
A-7. (a) The portion of any qualified distribution that is treated as a recovery of investment in the contract is determined in the same manner as if the distribution were not a qualified distribution. (See A-3 of this section) Thus, the remaining investment in the contract in a designated Roth account after a qualified distribution is determined in the same manner after a qualified distribution as it would be determined if the distribution were not a qualified distribution.
(b) The following example illustrates the application of this A-7:
Q-8. What is the relationship between the accounting for designated Roth contributions as investment in the contract for purposes of section 72 and their treatment as elective deferrals available for a hardship distribution under section 401(k)(2)(B)?
A-8. (a) There is no relationship between the accounting for designated Roth contributions as investment in the contract for purposes of section 72 and their treatment as elective deferrals available for a hardship distribution under section 401(k)(2)(B). A plan that makes a hardship distribution under section 401(k)(2)(B) from elective deferrals that includes designated Roth contributions must separately determine the amount of elective deferrals available for hardship and the amount of investment in the contract attributable to designated Roth contributions for purposes of section 72. Thus, the entire amount of a hardship distribution is treated as reducing the otherwise maximum distributable amount for purposes of applying the rule in section 401(k)(2)(B) and § 1.401(k)-1(d)(3)(ii) that generally limits hardship distributions to the principal amount of elective deferrals made less the amount of elective deferrals previously distributed from the plan, even if a portion of the distribution is treated as income under section 72(e)(8).
(b) The following example illustrates the application of this A-8:
Q-9. Can an employee have more than one separate contract for designated Roth contributions under a plan qualified under section 401(a) or a section 403(b) plan?
A-9. (a) Except as otherwise provided in paragraph (b) of this A-9, for purposes of section 72, there is only one separate contract for an employee with respect to the designated Roth contributions under a plan. Thus, if a plan maintains one separate account for designated Roth contributions made under the plan and another separate account for rollover contributions received from a designated Roth account under another plan (so that the rollover account is not required to be subject to the distribution restrictions otherwise applicable to the account consisting of designated Roth contributions made under the plan), both separate accounts are considered to be one contract for purposes of applying section 72 to the distributions from either account.
(b) If a separate account with respect to an employee's accrued benefit consisting of designated Roth contributions is established and maintained for an alternate payee pursuant to a qualified domestic relations order and another designated Roth account is maintained for the employee, each account is treated as a separate contract for purposes of section 72. The alternate payee's designated Roth account is also a separate contract for purposes of section 72 with respect to any other account maintained for that alternate payee. Similarly, if separate accounts are established and maintained for different beneficiaries after the death of an employee, the separate account for each beneficiary is treated as a separate contract under section 72 and is also a separate contract with respect to any other account maintained for that beneficiary under the plan that is not a designated Roth account. When the separate account is established for an alternate payee or for a beneficiary (after an employee's death), each separate account must receive a proportionate amount attributable to investment in the contract.
Q-10. What is the tax treatment of employer securities distributed from a designated Roth account?
A-10. (a) If a distribution of employer securities from a designated Roth account is not a qualified distribution, section 402(e)(4)(B) applies. Thus, in the case of a lump-sum distribution that includes employer securities, unless the taxpayer elects otherwise, net unrealized appreciation attributable to the employer securities is not includible in gross income; and such net unrealized appreciation is not included in the basis of the distributed securities and is capital gain to the extent such appreciation is realized in a subsequent taxable transaction.
(b) In the case of a qualified distribution of employer securities from a designated Roth account, the distributee's basis in the distributed securities for purposes of subsequent disposition is their fair market value at the time of distribution.
Q-11. Can an amount described in § 1.402(c)-2(c)(3) with respect to a designated Roth account be a qualified distribution?
A-11. No. An amount described in A-4 of § 1.402(c)-2 with respect to a designated Roth account cannot be a qualified distribution. Such an amount is taxable under the rules of §§ 1.72-16(b), 1.72(p)-1, A-11 through A-13, 1.402(g)-1(e)(8), 1.401(k)-2(b)(2)(vi), 1.401(m)-2(b)(2)(vi), or 1.404(k)-1T. Thus, for example, loans that are treated as deemed distributions pursuant to section 72(p), or dividends paid on employer securities as described in section 404(k) are not qualified distributions even if the deemed distributions occur or the dividends are paid after the employee attains age 59
1/2 and the 5-taxable-year period of participation defined in A-4 of this section has been satisfied. However, if a dividend is reinvested in accordance with section 404(k)(2)(A)(iii)(II), the amount of such a dividend is not precluded from being a qualified distribution if later distributed. Further, an amount is not precluded from being a qualified distribution merely because it is described in section 402(c)(4) as an amount not eligible for rollover. Thus, a hardship distribution is not precluded from being a qualified distribution.
Q-12. If any amount from a designated Roth account is included in a loan to an employee, do the plan aggregation rules of section 72(p)(2)(D) apply for purposes of determining the total amount an employee is permitted to borrow from the plan, even though the designated Roth account generally is treated as a separate contract under section 72?
A-12. Yes. If any amount from a designated Roth account is included in a loan to an employee, notwithstanding the general rule that the designated Roth account is treated as a separate contract under section 72, the plan aggregation rules of section 72(p)(2)(D) apply for purposes of determining the maximum amount the employee is permitted to borrow from the plan and such amount is based on the total of the designated Roth contribution amounts and the other amounts under the plan. To the extent a loan is from a designated Roth account, the repayment requirement of section 72(p)(2)(C) must be satisfied separately with respect to that portion of the loan and with respect to the portion of the loan from other accounts under the plan.
Q-13. Does a transaction or accounting methodology involving an employee's designated Roth account and any other accounts under the plan or plans of an employer that has the effect of transferring value from the other accounts into the designated Roth account violate the separate accounting requirement of section 402A?
A-13. (a) Yes. Any transaction or accounting methodology involving an employee's designated Roth account and any other accounts under the plan or plans of an employer that has the effect of directly or indirectly transferring value from another account into the designated Roth account violates the separate accounting requirement under section 402A. However, any transaction that merely exchanges investments between accounts at fair market value will not violate the separate accounting requirement.
(b) In the case of an annuity contract which contains both a designated Roth account and any other accounts, the Commissioner may prescribe additional guidance of general applicability, published in the Internal Revenue Bulletin (see 601.601(d)(2) of this chapter), to provide additional rules for allocation of income, expenses, gains and losses among the accounts under the contract.
(c) This A-13 applies to designated Roth accounts for taxable years beginning on or after January 1, 2006.
Q-14. How is an annuity contract that is distributed from a designated Roth account treated for purposes of section 402A?
A-14. A qualified plan distributed annuity contract within the meaning of § 1.402(c)-2(h) that is distributed from a designated Roth account is not treated as a distribution for purposes of section 402 or 402A. Instead, the amounts paid under the annuity contract are treated as distributions for purposes of sections 402 and 402A. Thus, the period after the annuity contract is distributed and before a payment from the annuity contract is made is included in determining whether the five-year period of participation is satisfied. Further, for purposes of determining if a distribution is a qualified distribution, the determination of whether a distribution is made on or after the date the employee attains age 59
1/2, made to a beneficiary or the estate of the employee on or after the employee's death, or attributable to the employee's being disabled within the meaning of section 72(m)(7) is made based on the facts at the time the distribution is made from the annuity contract. Thus for example, if an employee first makes a designated Roth contribution to a designated Roth account in 2006 at age 56, receives a distributed annuity contract within the meaning of § 1.402(c)-2, A-10(a) in 2007 purchased only with assets from the designated Roth account, and then receives a distribution from the contract in 2011 at age 60, the distribution is a qualified distribution.
Q-15. When are section 402A and this § 1.402A-1 applicable?
A-15. Section 402A is applicable for taxable years beginning on or after January 1, 2006. Except as otherwise provided in A-5 and A-13 of this section, the rules of this § 1.402A-1 apply for taxable years beginning on or after January 1, 2007.
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Treas. Reg. §1.402A-1(b)In the case of an annuity contract which contains both a designated Roth account and any other accounts, the Commissioner may prescribe additional guidance of general applicability, published in the Internal Revenue Bulletin (see 601.
In the case of an annuity contract which contains both a designated Roth account and any other accounts, the Commissioner may prescribe additional guidance of general applicability, published in the Internal Revenue Bulletin (see 601.601(d)(2) of this chapter), to provide additional rules for allocation of income, expenses, gains and losses among the accounts under the contract.
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Treas. Reg. §1.402A-1(c)This A-13 applies to designated Roth accounts for taxable years beginning on or after January 1, 2006.
This A-13 applies to designated Roth accounts for taxable years beginning on or after January 1, 2006.
Q-14. How is an annuity contract that is distributed from a designated Roth account treated for purposes of section 402A?
A-14. A qualified plan distributed annuity contract within the meaning of § 1.402(c)-2(h) that is distributed from a designated Roth account is not treated as a distribution for purposes of section 402 or 402A. Instead, the amounts paid under the annuity contract are treated as distributions for purposes of sections 402 and 402A. Thus, the period after the annuity contract is distributed and before a payment from the annuity contract is made is included in determining whether the five-year period of participation is satisfied. Further, for purposes of determining if a distribution is a qualified distribution, the determination of whether a distribution is made on or after the date the employee attains age 59
1/2, made to a beneficiary or the estate of the employee on or after the employee's death, or attributable to the employee's being disabled within the meaning of section 72(m)(7) is made based on the facts at the time the distribution is made from the annuity contract. Thus for example, if an employee first makes a designated Roth contribution to a designated Roth account in 2006 at age 56, receives a distributed annuity contract within the meaning of § 1.402(c)-2, A-10(a) in 2007 purchased only with assets from the designated Roth account, and then receives a distribution from the contract in 2011 at age 60, the distribution is a qualified distribution.
Q-15. When are section 402A and this § 1.402A-1 applicable?
A-15. Section 402A is applicable for taxable years beginning on or after January 1, 2006. Except as otherwise provided in A-5 and A-13 of this section, the rules of this § 1.402A-1 apply for taxable years beginning on or after January 1, 2007.
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Treas. Reg. §1.402A-1(d)§1.402A-1(d)
The following example illustrates the application of this A-5:
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Treas. Reg. §1.402A-1(e)This A-5 applies for taxable years beginning on or after January 1, 2006.
This A-5 applies for taxable years beginning on or after January 1, 2006.
Q-6. In the case of a rollover contribution to a designated Roth account, how is the amount that is treated as investment in the contract under section 72 determined?
A-6. (a) If a distribution from a designated Roth account is rolled over to another designated Roth account in a direct rollover, the amount of the rollover contribution allocated to investment in the contract in the recipient designated Roth account is the amount that would not have been includible in gross income (determined without regard to section 402(e)(4)) if the distribution had not been rolled over. Thus, if an amount that is a qualified distribution is rolled over, the entire amount of the rollover contribution is allocated to investment in the contract.
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Treas. Reg. §1.402A-2Reporting and recordkeeping requirements with respect to designated Roth accounts
Q-1. Who is responsible for keeping track of the 5-taxable-year period of participation and the investment in the contract, i.e., the amount of unrecovered designated Roth contributions for the employee?
A-1. The plan administrator or other responsible party with respect to a plan with a designated Roth account is responsible for keeping track of the 5-taxable-year period of participation for each employee and the amount of investment in the contract (unrecovered designated Roth contributions) on behalf of such employee. For purposes of the preceding sentence, in the absence of actual knowledge to the contrary, the plan administrator or other responsible party is permitted to assume that an employee's taxable year is the calendar year. In the case of a direct rollover from another designated Roth account, the plan administrator or other responsible party of the recipient plan can rely on reasonable representations made by the plan administrator or responsible party with respect to the plan with the other designated Roth account. See A-2 of this section for statements required in the case of rollovers.
Q-2. In the case of an eligible rollover distribution from a designated Roth account, what additional information must be provided with respect to such distribution?
A-2. (a) Pursuant to section 6047(f), if an amount is distributed from a designated Roth account, the plan administrator or other responsible party with respect to the plan must provide a statement as described below in the following situations—
(1) In the case of a direct rollover of a distribution from a designated Roth account under a plan to a designated Roth account under another plan, the plan administrator or other responsible party must provide to the plan administrator or responsible party of the recipient plan either a statement indicating the first year of the 5-taxable-year period described in A-1 of this section and the portion of the distribution that is attributable to investment in the contract under section 72, or a statement that the distribution is a qualified distribution.
(2) If the distribution is not a direct rollover to a designated Roth account under another plan, the plan administrator or responsible party must provide to the employee, upon request, the same information described in paragraph (a)(1) of this A-2, except the statement need not indicate the first year of the 5-taxable-year period described in A-1 of this section.
(b) The statement described in paragraph (a) of this A-2 must be provided within a reasonable period following the direct rollover or distributee request but in no event later than 30 days following the direct rollover or distributee request.
Q-3. If a plan qualified under section 401(a) or a section 403(b) plan accepts a 60-day rollover of earnings from a designated Roth account, what report to the IRS must be provided with respect to such rollover contribution?
A-3. To the extent required in Forms and Instructions, if a plan qualified under section 401(a), or a section 403(b) plan, accepts a rollover contribution (other than a direct rollover contribution) under section 402(c)(2), or section 403(b)(8)(B), of the portion of a distribution from a designated Roth account that would have been includable in gross income, the plan administrator or other responsible party for the recipient plan must notify the Commissioner of its acceptance of the rollover contribution no later than the due date for filing Form 1099-R, “ Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,.” The Forms and Instructions will specify the address to which the notification is required to be sent and will require inclusion of the employee's name and social security number, the amount rolled over, the year in which the rollover contribution was made, and such other information as the Commissioner may prescribe in order to determine that the amount rolled over is a valid rollover contribution.
Q-4. When is this § 1.402A-2 applicable?
A-4. The rules of this § 1.402A-2 are applicable for taxable years beginning on or after January 1, 2007.
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Treas. Reg. §1.402A-2(b)The statement described in paragraph (a) of this A-2 must be provided within a reasonable period following the direct rollover or distributee request but in no event later than 30 days following the direct rollover or distributee request.
The statement described in paragraph (a) of this A-2 must be provided within a reasonable period following the direct rollover or distributee request but in no event later than 30 days following the direct rollover or distributee request.
Q-3. If a plan qualified under section 401(a) or a section 403(b) plan accepts a 60-day rollover of earnings from a designated Roth account, what report to the IRS must be provided with respect to such rollover contribution?
A-3. To the extent required in Forms and Instructions, if a plan qualified under section 401(a), or a section 403(b) plan, accepts a rollover contribution (other than a direct rollover contribution) under section 402(c)(2), or section 403(b)(8)(B), of the portion of a distribution from a designated Roth account that would have been includable in gross income, the plan administrator or other responsible party for the recipient plan must notify the Commissioner of its acceptance of the rollover contribution no later than the due date for filing Form 1099-R, “ Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,.” The Forms and Instructions will specify the address to which the notification is required to be sent and will require inclusion of the employee's name and social security number, the amount rolled over, the year in which the rollover contribution was made, and such other information as the Commissioner may prescribe in order to determine that the amount rolled over is a valid rollover contribution.
Q-4. When is this § 1.402A-2 applicable?
A-4. The rules of this § 1.402A-2 are applicable for taxable years beginning on or after January 1, 2007.
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No citing cases found in the corpus.