Compliance June 5, 2007

IRS Puts Out Roth IRA Rollover Final Regs

Plan sponsors of prototype Roth IRAs interested in taking rollovers from 402A Roth Accounts first have to change their IRA documents to be allowed to do so.

Reported by

Fred Schneyer

That was a key outcome contained in final Internal Revenue Service (IRS) regulations that will affect administrators of, employers maintaining, participants in, and beneficiaries of 401(k) and 403b) plans, and owners and beneficiaries of Roth IRAs and trustees of Roth IRAs, tax officials said.

For a Roth IRA that is intended to be a prototype Roth IRA to accept an eligible rollover contribution from a designated Roth account prior to an amendment permitting such rollovers, the prototype Roth IRA document must be amended and adopted no later than December 31, 2007, officials said.

So, if a prototype Roth IRA accepts a rollover from a designated Roth account prior to the date of amendment, the mere acceptance of such rollover contribution will not affect the Roth IRA’s prototype status provided the adoption of the amendment is timely.

Tax officials said that no application to the IRS is required for continued reliance on an Opinion Letter. The model Roth IRAs (Forms 5305-R, 5305-RA and 5305-RB) already contain language permitting the acceptance of rollovers from designated Roth accounts. So,users of such forms do not need to amend their IRA document to permit such rollovers.

The text of the latest rules is available at http://www.irs.gov/irb/2007-23_irb/ar14.html.