IRS Issues Final Rules on After-Tax Rollovers to Roth IRAs

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By Kristen Ricaurte Knebel

May 17 —Retirement plan participants are now able to transfer after-tax savings from their retirement plans to Roth individual retirement accounts with greater ease, thanks to final regulations issued by the IRS.

Under the final rules, plan participants can pocket their contributions to a designated Roth account, which have already been taxed, while directly rolling over their earnings from that same account into another designated Roth account or Roth IRA without incurring a tax on those funds, the Internal Revenue Service said in the guidance, issued May 17.

Elizabeth T. Dold, a principal at Groom Law Group Chartered in Washington, told Bloomberg BNA on May 17 that the final rules are “good news, but the same news as we had before.”

The final rules are “substantively” the same as the proposed rules, but the guidance was slightly modified “to better reflect the ongoing rule and the transition rule,” the IRS said.

Proposed rules were issued in September 2014, along 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 (182 PBD, 9/19/14).

The regulations apply to distributions from designated Roth accounts made on or after Jan. 1, 2016, and taxpayers are required to follow the allocation rules described in Notice 2014-54.

A separate distribution rule applies to distributions made before Jan. 1, 2016, “unless a taxpayer elects not to apply that rule with respect to a distribution made on or after September 18, 2014,” the IRS said.

Those who choose not to apply the separate distribution rule to distributions that were made during the transition period must “apply a reasonable interpretation of the last sentence of section 402(c)(2)” in order to “allocate pretax and after-tax amounts among disbursements made to multiple destinations,” the IRS said.

The rules are effective upon publication in the Federal Register, which is scheduled for May 18.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

For More Information

Text of the final rules is at

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