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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
From Spencer's Benefits Reports: In Notice 2009-75, the Internal Revenue Service describes the federal income tax consequences of rolling over an eligible distribution from an IRC Sec. 401(a) qualified retirement plan, an IRC Sec. 401(a) annuity plan, an IRC Sec. 403(b) tax-sheltered annuity, or an IRC Sec. 457 deferred compensation plan maintained by a state or local government to a Roth individual retirement account.
Notice 2009-75 addresses rollovers of designated Roth contributions under 401(k) plans, which are elective deferrals that have been designated by an employee as not excludable from the employee’s gross income. As provided by IRC Sec. 402A(b)(2), designated Roth contributions made to the plan must be maintained in a separate account.
Under IRC Sec. 402(a), a distribution from a qualified retirement plan generally is taxable under IRC Sec. 72 to the distributee in the taxable year distributed. However, pursuant to Sec. 402A(d)(1), a qualified distribution from a designated Roth account is excludable from gross income. Sec. 402A(d)(2) defines a “qualified distribution” as a distribution that is made after completion of a specified five-year period and the satisfaction of other specified requirements. If the distribution is not a qualified distribution, then the distribution is included in the distributee’s gross income to the extent allocable to income on the contract and excluded from gross income to the extent allocable to investment in the contract.
IRC Sec. 402(c) sets forth the rules under which an eligible rollover distribution from a qualified retirement plan may be rolled over to an eligible retirement plan. In such a case, the distribution generally is not currently includible in the distributee’s gross income. Pursuant to Secs. 402(c)(8) and 402A(c)(3), a distribution from a designated Roth account may be rolled over only to another designated Roth account or to a Roth IRA.
Rules Changed By PPA
Prior to the enactment of the Pension Protection Act of 2006 (PPA), an eligible rollover distribution from an eligible employer plan not made from a designated Roth account could be rolled over to a nonRoth IRA and then converted to a Roth IRA, but could not be rolled over to a Roth IRA without an intervening rollover to a nonRoth IRA followed by a conversion to a Roth IRA. However, the PPA amended the definition of a “qualified rollover contribution” in Sec. 408A for distributions on or after Jan. 1, 2008, to allow the recipient of an eligible rollover distribution not made from a designated Roth account to roll over the amount of the distribution to a Roth IRA without first contributing that amount to a nonRoth IRA.
Thus, a rollover from an eligible employer plan (other than from a designated Roth account) to a Roth IRA results in the same federal income tax consequences for a participant as a rollover to a nonRoth IRA immediately followed by a conversion to a Roth IRA. For taxable years beginning before Jan. 1, 2010, a rollover from an eligible employer plan not made from a designated Roth account is available only to a taxpayer whose modified adjusted gross income for the year of the distribution does not exceed $100,000 (in the case of married couples filing jointly).
Notice 2009-75 clarifies that if an eligible rollover distribution from an eligible employer plan is rolled over to a Roth IRA and the distribution is not made from a designated Roth account, then the amount that would be includible in gross income were it not part of a qualified rollover contribution is included in the distributee’s gross income for the year of the distribution. The amount included in gross income is equal to the amount rolled over, reduced by the amount of any after-tax contributions that are included in the amount rolled over, in the same manner as if the distribution had been rolled over to a nonRoth IRA and that nonRoth IRA had then been immediately converted to a Roth IRA. If an eligible rollover distribution made from a designated Roth account in an eligible employer plan is rolled over to a Roth IRA, the amount rolled over is not includible in the distributee’s gross income, whether or not the distribution is a qualified distribution from the designated Roth account.
If an eligible rollover distribution made before 2010 is ineligible to be rolled over to a Roth IRA either because the distributee’s modified adjusted gross income exceeds $100,000 or because a married distribute does not file a joint return, the distribution can be rolled over into a nonRoth IRA and then on or after Jan. 1, 2010, the nonRoth IRA can be converted into a Roth IRA. There are no restrictions based on the modified adjusted gross income limitations and joint filing requirements that apply to a rollover of an eligible rollover distribution made to a Roth IRA from a designated Roth account under an eligible employer plan.
For further information on Notice 2009-75, contact Kathleen Herrmann via e-mail at RetirementPlanQuestions@irs.gov.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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