Roth 401K Roadmap For Employers - Jan 25, 2006

[roth401k]

United States: Roth 401(K) Roadmap For Employers

25 January 2006
Article by Nancy S. Gerrie, Paul M. Hamburger PC and Lauson C. Green


On December 30, 2005, the U.S. Internal Revenue Service (IRS) issued final regulations providing guidance on designated Roth (Roth 401(k)) contributions under section 402A of the Internal Revenue Code. The basic appeal of Roth 401(k)s is the same as for Roth IRAs—when future qualified distributions are made, they are tax-free, and earnings on the original contributions are tax-free as well.

Although further guidance on Roth 401(k)s is anticipated later this year, plan sponsors may implement Roth 401(k) provisions effective January 1, 2006. Due to extensive press coverage of Roth 401(k)s and strong endorsement of the concept by a number of major investment firms, plan sponsors must be prepared to address Roth 401(k) inquiries and requests from both participants and plan service providers. Despite these developments, plan sponsors should proceed with caution before implementing Roth 401(k) provisions because of a number of practical and legal considerations and uncertainties.

The Basics

Roth 401(k) contributions are a separate......

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