23 June 2017

IRS Issues Regs on Roth 401(k) Distributions

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For advisors, the most helpful piece of guidance may well be found in Notice 2014-54, “Guidance on Allocation of After-Tax Amounts to Rollovers,” which provides rules for allocating pretax and after-tax amounts among disbursements that are made to multiple destinations from a 401(a) plans (including 401(k), 403(b) and 457(b) plans). 

The notice provides four different examples of how the rules apply. While they generally apply to distributions made on or after Jan. 1, 2015, the rules also allow for “a reasonable interpretation of the last sentence of §402(c)(2) to allocate after-tax and pretax amounts among disbursements made to multiple destinations” for distributions made on or after Sept. 18, 2014.

Separately, the IRS released proposed rules to the regulations on the tax treatment of distributions from Roth accounts under tax-favored retirement plans, such as 401(k), 403(b) and 457 programs. The proposed regulations would limit the applicability of the rule on allocating after-tax amounts when disbursements are made to multiple locations. The proposed rule would apply only to distributions made before Jan. 1, 2015, or a date chosen by the taxpayer that is on or after Sept. 18 (the date of the proposed regulations). 

Final Hybrid Regulations 

The IRS also issued its much-anticipated final regulations on hybrid retirement plans, including cash balance plans, on Sept. 18. In a 111-page document, the final regulations provide guidance on issues left unaddressed by the last set of rules on hybrid plans issued in 2010. 

Also included were proposed regulations on hybrid plans that would allow DB plans not complying with the requirement that plans not provide interest credits at a rate above the market rate of return to comply with that requirement by changing to an interest crediting rate that is permitted under the final regulations without violating the anti-cutback rules of Code Section 411(d)(6). 

A hearing has been scheduled for Jan. 9, 2015 on the proposed rules on hybrid plans.

Click here to access the full article on NAPA Net.

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