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Internal Revenue Code section 402A provides that a distribution from a designated Roth account is considered a qualified distribution and is not subject to income tax if it is made following a five-taxable-year holding period (the nonexclusion period). Specifically, ASPPA asked the Internal Revenue Service (IRS) to issue guidance clarifying that the five-taxable-year holding period for in-plan Roth conversions begins as of the date of conversion. ASPPA cited regulations in which this appears to be the intent, and noted it is consistent with the treatment of Roth accounts created by the conversion of accounts by any other method. However, the question arose because the IRS response to a Q&A at the 2011 ASPPA Annual Conference indicated the IRS may not agree. The ASPPA letter is here.
Internal Revenue Code section 402A provides that a distribution from a designated Roth account is considered a qualified distribution and is not subject to income tax if it is made following a five-taxable-year holding period (the nonexclusion period). Specifically, ASPPA asked the Internal Revenue Service (IRS) to issue guidance clarifying that the five-taxable-year holding period for in-plan Roth conversions begins as of the date of conversion.
ASPPA cited regulations in which this appears to be the intent, and noted it is consistent with the treatment of Roth accounts created by the conversion of accounts by any other method. However, the question arose because the IRS response to a Q&A at the 2011 ASPPA Annual Conference indicated the IRS may not agree.
Rebecca Mooreeditors@plansponsor.com