IRS Gives Guidance on Rollovers Of After-Tax Amounts to Roth IRAs


The Internal Revenue Service released  proposed rules and accompanying  guidance that eases the ability of plan participants to transfer after-tax savings from their retirement plans to Roth IRAs.

The proposed regulations (REG-105739-11, RIN 1545-BK08), issued Sept. 18, would apply to distributions made after Jan. 1, 2015. However, participants may rely on these proposed rules starting now, the guidance said.

Elizabeth Dold, of Groom Law Group Chartered in Washington, told Bloomberg BNA in an e-mail that “this IRS relief should be well received by plan sponsors and participants, and largely aligns with existing practice—allowing participants to roll over pre-tax amounts to a traditional IRA or qualified plan (and continue to defer), while permitting cash distributions of after-tax amounts tax-free to participants (or rolled to a Roth IRA). This avoids the complexities of a pro rata allocation approach that was first described in the sample IRS rollover notice.”

The proposed rules were issued in conjunction with Notice 2014-54, which permits participants to direct from a retirement plan after-tax and pretax amounts that are simultaneously disbursed to multiple destinations so as to allocate them to specific destinations, without requiring pro rata treatment.

Participants will be able to direct these allocations in connection with disbursements that are directly rolled over, not only in connection with 60-day rollovers after receiving a distribution, the guidance said.

The proposed rules were published in the Federal Register on Sept. 19 (79 Fed. Reg. 56,310, 9/19/14). Comments and requests for a public hearing on the guidance must be received by Dec. 18. 

Excerpted from a story that ran in Pension & Benefits Daily (9/18/2014).