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Treasury and IRS Finalize Rules Regarding Roth 401(k) Contributions


December 30, 2005, Today, the Treasury Department and the IRS issued final regulations regarding sections 401(k) and 401(m) related to designated Roth contributions. Roth contributions were added to the Code by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and are effective for taxable years beginning after December 31, 2005. Designated Roth contributions allow for employees to designate all or a portion of their section 401(k) employee deferrals as Roth contributions, which would receive treatment much like a Roth IRA contribution (i.e., they would be contributed on an after tax basis, but qualified distributions of those contributions, plus earnings, would be tax-free).

These regulations finalize rules that were proposed on March 2, 2005. Plan sponsors desiring to offer employees the opportunity to make designated Roth contributions will find these regulations useful in designing their plans to accept such contributions. Further rules, largely focusing on the tax treatment of distributions of designated Roth contributions, will be issued in proposed form in the near future.


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