Proposed Regulations Issued Regarding Roth Contributions

>Roth contributions will allow employees to chose to designate all or a portion of their 401(k) employee deferrals on an after-tax basis, and were created as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

>Roth contributions are not effective until taxable years beginning after the last day of 2005, according to a press release; however, many plan sponsors are still looking to amend plans to give employees this option.

>The proposed regulations would amend section 1.401(k) -1(f) of the federal tax code to provide a definition of designated Roth contributions. Under these proposed regulations, Roth contributions are defined as elective contributions under a qualified plan when they are expressly defined as such by the employee electing to do so, treated by the employer and part of the employee’s income subject to normal withholding taxes, and maintained in a separate account of the plan. All contributions that fall under the Roth heading must satisfy these requirements, according to the regulations.

>Before they are adopted as final regulations, the IRS is requesting written comments on the matter. A draft of the proposed rules is available  here . It is also available in the March 2 issue of the Federal Register.