Roth 401(k) distributions.

• Author: Laffie, Lesli S.

Proposed regulations (REG-146459-05) provide further guidance and clarification on the taxation of distributions from designated Roth accounts under Sec. 401(k) and 403(b) plans. (For a discussion of the proposed regulations on designating elective contributions to a Sec. 401(k) plan as Roth contributions, see News Notes, Laffie, "Roth 401 (k)s," TTA, March 2006, p. 133.)

Designated Roth contributions allow employees to designate all or a portion of their elective contributions under a Sec. 401(k) or 403(b) annuity plan as Roth contributions. These contributions would receive tax treatment much like Roth IRA contributions (i.e., they would be contributed from after-tax income but later, "qualifying distributions" of the contributions plus earnings would be completely tax-free).

To be a qualified Roth distribution, the amount must meet certain requirements, which include having been held for five years and having been made after the participant reaches age 59 1/2, dies or becomes disabled. Roth distributions can only be rolled over to other Roth plans or IRAs.

If a distribution is not qualified, under Sec. 72 the distribution would be included in the distributee's gross income, to the extent allocable to income...