Roth 401(k) Regulations Proposed

[roth401k]

Roth 401(k) Regulations Proposed
April 13, 2005

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) included a provision for "Roth 401(k)s." The Internal Revenue Service has proposed regulations implementing Roth 401(k)s and providing guidance on certain recordkeeping and administrative issues. In this article we will review, briefly, the basics of Roth 401(k)s and the IRS proposal.

Roth 401(k) basics
Roth 401(k) contributions are salary reduction contributions made out of after-tax pay. They accumulate in the 401(k) plan tax-free and are not subject to taxation on distribution. Assuming constant tax rates, paying taxes up-front, accumulating earnings tax-free, and not paying taxes on distribution is financially equivalent to a "regular" 401(k) contribution, where you defer taxation up-front but are taxed on distribution.

Generally, Roth contributions can lose tax-favored treatment if......

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