IRS Posts Roth Amendment Guidance

April 25, 2006 ( - The Internal Revenue Service (IRS) is ready to lend a hand to plan sponsors who still need to amend their plan documents to properly reflect that they are accepting Roth contributions.

The IRS on Monday put out Notice 2006-44, which provides sample plan language for 401(k) plan sponsors to use for their plan amendments.

The language may be used by pre-approved plans and individually designed plans, and plan administrators should modify the language to fit their specific situations, the IRS said. For example, according to the IRS, the sample amendment does not address “the extent to which an employee can elect that a distribution (other than a corrective distribution of excess distributions) is to be made from either the designated Roth account or any other account of the employee under the plan.”  Plans will need to conform their plan amendments to cover this issue.

Officials said the adoption of the amendment allowing for designated Roth contributions will not cause master and prototype or volume submitter plans to fail to be pre-approved. If such an amendment caused the plan to satisfy the tax qualification provisions of 401(a), IRS said, “the plan will not be disqualified if a remedial amendment that corrects the failure is adopted before the end of the remedial amendment period.”

Beginning in 2006, Section 401(k) plans may allow participants to make designated Roth elective deferrals with after-tax income, as long as the plans are amended to allow the contributions by the end of the year in which the amendment is effective. Employers must sign and date their amendments permitting Roth contributions, IRS said in the notice.

The notice is here.