Final Regulation

Federal Register / Vol. 72, No. 82 / Monday, April 30, 2007 / Rules and Regulations
(i) Before January 1, 2002, the
claimant’s net earnings in a month were
more than the amount(s) indicated in
Table 2 of this section for the year(s) in
which the claimant worked, or the
hours the claimant worked in the
business in a month are more than the
number of hours per month indicated in
Table 2 for the years in which the
claimant worked.
(ii) Beginning January 1, 2002, the
claimant worked more than 80 hours a
month in the business, or the claimant’s

net earnings in a month are more than
an amount determined for each calendar
year to be the larger of:
(A) Such amount for the previous
year, or
(B) The amount established by the
Social Security Administration for such
year as constituting the amount of
monthly earnings used to determine
whether a person has performed
services for counting trial work period
months.

21103

TABLE 1.—FOR NON SELFEMPLOYED
You earn more
than

For months
In calendar years before
1979 ..................................
In calendar years 1979–1989
In calendar years 1990–2000
In calendar year 2001 ..........

$50
75
200
530

Your net earnings are more
than

Or you work in
the business
more than
(hours)

$50
75
200
530

15
15
40
80

TABLE 2.—FOR THE SELF-EMPLOYED
For months

In
In
In
In

calendar
calendar
calendar
calendar

*

*

years before 1979 ................................................................................................................................
years 1979–1989 ..................................................................................................................................
years 1990–2000 ..................................................................................................................................
year 2001 ..............................................................................................................................................

*

*

Applicability Date: These regulations
generally apply to taxable years
beginning on or after January 1, 2007.
For dates of applicability, see
§§ 1.401(k)–1(f)(6), 1.402A–1, A–15,
1.402A–2, A–4 and 1.408A–10, A–6.
FOR FURTHER INFORMATION CONTACT: R.
Lisa Mojiri-Azad or William D. Gibbs at
202–622–6060, or Cathy A. Vohs, 202–
622–6090 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:

*

Dated: April 24, 2007.
By Authority of the Board.
Beatrice Ezerski,
Secretary to the Board.
[FR Doc. E7–8155 Filed 4–27–07; 8:45 am]
BILLING CODE 7905–01–P

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 9324]
RIN 1545–BF04

Designated Roth Accounts Under
Section 402A
Internal Revenue Service (IRS),
Treasury.
ACTION: Final Regulations.

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AGENCY:

SUMMARY: This document contains final
regulations under sections 401(k),
402(g), 402A, and 408A of the Internal
Revenue Code (Code) relating to
designated Roth accounts. These final
regulations provide guidance
concerning the taxation of distributions
from designated Roth accounts under
qualified cash or deferred arrangements
under section 401(k). These final
regulations will affect administrators of,
employers maintaining, participants in,
and beneficiaries of section 401(k) and
section 403(b) plans, as well as owners
and beneficiaries of Roth IRAs and
trustees of Roth IRAs.
DATES: Effective Date: These final
regulations are effective April 30, 2007.

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Paperwork Reduction Act
The collection of information
contained in these final regulations was
reviewed and approved by the Office of
Management and Budget (OMB) for
review in accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)) under control number
OMB–1545–1992.
The collection of information in these
final regulations is in 26 CFR 1.402A–
2. This information is required to
comply with the separate accounting
and recordkeeping requirements of
section 402A. This information will be
used by the IRS and employers
maintaining designated Roth accounts
to insure compliance with the
requirements of section 402A. The
collection of information is required to
obtain a benefit. The likely
recordkeepers are state or local
governments, business or other forprofit institutions, nonprofit
institutions, and small businesses or
organizations.
The estimated annual burden per
respondent under control number
OMB–1545–1992 is 2.3 hours.
An agency may not conduct or
sponsor, and a person is not required to

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respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
This document contains final
regulations under section 402A, and
amendments to regulations under
sections 401(k), 402(g), and 408A of the
Internal Revenue Code. Section 402A,
which sets forth rules for designated
Roth contributions, was added to the
Code by section 617(a) of the Economic
Growth and Tax Relief Reconciliation
Act of 2001, Public Law 107–16 (115
Stat. 103) (EGTRRA), effective for
taxable years beginning after December
31, 2005. These final regulations also
reflect certain provisions of the Pension
Protection Act of 2006, Public Law 109–
280, (120 Stat. 780) (PPA ’06), including
section 811 of PPA ’06, which repealed
the sunset provisions of EGTRRA with
respect to section 402A.
Section 401(k) sets forth rules for
qualified cash or deferred arrangements
under which an employee may make an
election between cash and an employer
contribution to a plan qualified under
section 401(a). Section 403(b) permits a
similar salary reduction agreement
under which payments are made to a
section 403(b) plan. Section 402(e)(3)
provides that an amount is not

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includible in an employee’s income
merely because the employee has an
election whether these contributions
will be made to the trust or annuity or
received by the employee in cash.
Amounts contributed pursuant to
these qualified cash or deferred
arrangements and salary reduction
agreements are defined in section
402(g)(3) as elective deferrals. Section
402(g)(1) provides a limit on the amount
of elective deferrals that may be
excluded from an employee’s income
for a taxable year. Section 402(g)(2)
provides for the distribution of elective
deferrals that exceed the annual limit on
elective deferrals (an excess deferral).
A designated Roth contribution is an
elective deferral, as described in section
402(g)(3)(A) or (C), that has been
designated by an employee, pursuant to
section 402A, as not excludable from
the employee’s gross income. Under
section 402A(b)(2), designated Roth
contributions must be maintained by the
plan in a separate account (a designated
Roth account).
Under section 402(a), a distribution
from a plan qualified under section
401(a) is taxable under section 72 to the
distributee in the taxable year
distributed. However, pursuant to
section 402A(d)(1), a qualified
distribution from a designated Roth
account is excludable from gross
income. A qualified distribution is
defined in section 402A(d)(2) as a
distribution that is made after
completion of a specified 5-year period
and the satisfaction of other specified
requirements.
If the distribution is not a qualified
distribution, pursuant to section 72, the
distribution is included in the
distributee’s gross income to the extent
allocable to income on the contract and
excluded from gross income to the
extent allocable to investment in the
contract (basis). The amount of a
distribution allocated to investment in
the contract is generally determined by
applying to the distribution the ratio of
the investment in the contract to the
account balance.
Section 402(c) provides rules under
which certain distributions from a plan
qualified under section 401(a) may be
rolled over into another eligible
retirement plan. In such a case, the
distribution is not currently includible
in the distributee’s gross income. Under
section 402(c)(2), as amended by section
822 of PPA ’06, to the extent some or all
of the distribution from a plan qualified
under section 401(a) would not have
been includible in gross income if it
were not rolled over, that portion of the
distribution can only be rolled over into
an individual retirement plan, or

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through a direct rollover to another
qualified plan or section 403(b) plan
that agrees to separately account for
such rolled over amounts. Section
403(b)(8)(B) provides that the rules of
section 402(c)(2) also apply for purposes
of the rollover rules under section
403(b)(8).
Under section 402(c)(8) and
402A(c)(3), a distribution from a
designated Roth account can be rolled
over only to another designated Roth
account or to a Roth IRA. Under section
408A, a Roth IRA is a type of individual
retirement plan (IRA) under which
contributions are never deductible and
qualified distributions are excludable
from gross income. Section 408A(d)(4)
sets forth special ordering rules for the
return of basis in the case of a
distribution from a Roth IRA. Under the
section 408A(d)(4) ordering rules, in a
nonqualified distribution from a Roth
IRA, basis is recovered before income.
Section 617(d) of EGTRRA amended
section 6051(a)(8) to require the
reporting of designated Roth
contributions on Form W–2, ‘‘Wage and
Tax Statement,’’ and added a new
subsection (f) to section 6047 to require
plan administrators or other responsible
persons of section 401(k) or 403(b) plans
to make such returns and reports
regarding designated Roth contributions
to the Secretary of the Treasury and
such other persons the Secretary may
prescribe.
Final regulations under section 401(k)
were issued on December 29, 2004 (69
FR 78144). Those final regulations
reserved § 1.401(k)–1(f) for special rules
for designated Roth contributions. On
January 3, 2006, final regulations were
issued that fill in that reserved
paragraph and provide additional rules
applicable to designated Roth
contributions (71 FR 6). The provisions
of the final regulations under section
401(k) regarding designated Roth
contributions do not address the
taxability of distributions from
designated Roth accounts or the
reporting requirements that apply to
contributions of designated Roth
contributions or distributions from the
accounts.
On January 26, 2006, a notice of
proposed rulemaking (REG–146459–05)
under section 402A was published in
the Federal Register (71 FR 4322). The
proposed regulations also would have
provided guidance with respect to
designated Roth contributions under
section 403(b) plans by amending the
proposed regulations under section
403(b), published in the Federal
Register on November 16, 2004 (69 FR
67075). This guidance has not been
finalized in this Treasury Decision, but

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will instead be included in the final
regulations under section 403(b).
Written comments responding to the
notice of proposed rulemaking under
section 402A were received. A public
hearing was held on July 26, 2006. After
consideration of all comments, these
final regulations adopt the provisions of
the proposed regulations with certain
modifications, the most significant of
which are highlighted below.
These final regulations under section
402A are intended to provide
comprehensive guidance on the taxation
of distributions from designated Roth
accounts under section 401(k) and
section 403(b) plans. These regulations
also provide guidance on the reporting
requirements with respect to these
accounts and include amendments to
the provisions of the final section 401(k)
regulations relating to designated Roth
contributions. In addition, these final
regulations include amendments to the
regulations under section 402(g) issued
in 1991 in order to reflect the enactment
of section 402A (as well as other
statutory changes since those
regulations were issued) and to make
changes to conform the regulations
under section 402(g) to the final section
401(k) regulations. These final
regulations also add a new § 1.408A–10
to the existing regulations under section
408A for Roth IRAs (§ 1.408A–1 through
9) issued in 1999 to reflect the
interaction between section 408A and
section 402A.
Explanation of Provisions
Overview
These final regulations, like the
proposed regulations, provide guidance
on the taxation of distributions from
designated Roth accounts and other
related issues. A designated Roth
account is a separate account under a
section 401(k) plan or section 403(b)
plan to which designated Roth
contributions are made, and for which
separate accounting of contributions,
gains, and losses are maintained. These
final regulations retain the rule from the
proposed regulations that any
transaction or accounting methodology
involving an employee’s designated
Roth account and any other accounts
under the plan or plans of an employer
that has the effect of directly or
indirectly transferring value from
another account into the designated
Roth account violates the separate
accounting requirement under section
402A.
The taxation of a distribution from a
designated Roth account depends on
whether or not the distribution is a
qualified distribution. A qualified

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distribution from a designated Roth
account is not includible in the
employee’s gross income. A qualified
distribution is generally a distribution
that is made after a 5-taxable-year
period of participation and that either
(1) is made on or after the date the
employee attains age 591⁄2, (2) is made
after the employee’s death, or (3) is
attributable to the employee’s being
disabled within the meaning of section
72(m)(7). In response to comments,
these final regulations clarify that, in the
case of distribution to an alternate payee
or beneficiary, the age, death or
disability of the participant are used to
determine whether the distribution is
qualified. The only exception is in the
case of a rollover by an alternate payee
or surviving spouse to a designated Roth
account under a plan of his or her own
employer.
Determination of 5-Taxable-Year Period
for Qualified Distributions
In order for a distribution from a
designated Roth account to be a
qualified distribution and thus not
includible in gross income, a 5-taxableyear requirement must be satisfied.
These final regulations, like the
proposed regulations, reflect the rule in
section 402A that the 5-taxable-year
period during which a distribution is
not a qualified distribution begins on
the first day of the employee’s taxable
year for which the employee first had
designated Roth contributions made to
the plan and ends when 5 consecutive
taxable years have been completed.
However, if a direct rollover is made
from a designated Roth account under
another plan, the 5-taxable-year period
for the recipient plan begins on the first
day of the employee’s taxable year for
which the employee first had designated
Roth contributions made to the other
plan, if earlier.
Commentators inquired as to when
designated Roth contributions made by
a reemployed veteran for a year of
qualified military service pursuant to
section 414(u), are treated as made for
purposes of the 5-taxable-year period of
participation. In response to these
comments, the final regulations provide
that designated Roth contributions made
by a reemployed veteran are treated as
made in the taxable year with respect to
which the contributions relate.
Reemployed veterans may identify the
year for which a contribution is made
for other purposes, such as for
entitlement to a match, and the
treatment for the five year period of
participation rule follows that
identification. Absent such an
identification, for purposes of
determining the first year of the five

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years of participation under section
402A(d)(2)(B), the contribution is
treated as made in the veteran’s first
taxable year in which the veteran’s
qualified military service begins, or if
later, the first taxable year in which
designated Roth contributions could be
made under the plan.
Commentators asked how the 5taxable-year period of participation rule
applies to a required minimum
distribution made for an earlier year,
such as a distribution made on April 1
following the year an employee attains
age 701⁄2. They also asked whether, if
payments under an annuity stream
commence before a qualifying event, the
payments after the qualifying event
could be qualified distributions
(assuming the 5-year period of
participation is satisfied). The
determination of whether a payment is
a qualified distribution is determined
based upon the actual year of the
payment from the account and does not
take into account whether the payment
is part of a series of distributions or
whether the payment is attributable to a
prior calendar year.
In response to comments, these final
regulations provide that certain
contributions do not start the 5-taxableyear period of participation. For
example, a year in which the only
contributions consist of excess deferrals
will not start the 5-taxable-year period
of participation. Further, excess
contributions that are distributed to
prevent an ADP failure also do not begin
the 5-taxable-year period of
participation. Finally, contributions
returned to the employee pursuant to
section 414(w) also do not start the 5taxable-year period of participation.
Taxation of Nonqualified Distributions
These final regulations retain the
rules from the proposed regulations for
taxation of nonqualified distributions
and provide that a distribution from a
designated Roth account that is not a
qualified distribution is taxable to the
distributee under section 402 (or section
403(b)(1)), treating the designated Roth
account as a separate contract under
section 72. In applying that treatment,
the portion of any distribution that is
includible in gross income as an amount
allocable to income on the contract and
the portion not includible in income as
an amount allocable to investment in
the contract is generally determined
under section 72(e)(8) (or, in the case of
an amount received as an annuity,
section 72 (b) or (d), as applicable).
Some commentators requested that
the special ordering rules in section
408A(d), which provide that the first
distributions from a Roth IRA are a

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21105

return of contributions (and thus not
includible in gross income) until all
contributions have been returned as
basis, be applied to distributions from a
designated Roth account. They noted
that a pro rata basis recovery rule in
section 72 is difficult to explain to
employees receiving a hardship
distribution from a designated Roth
account because the entire distribution
reduces the amount of elective
contributions (including designated
Roth contributions) available for
hardship distribution while, for
purposes of determining the amount
includible in income under sections
402(a) and 72, only a portion of the
distribution is treated as recovery of
basis attributable to the designated Roth
contributions.
As noted in the preamble to the
proposed regulations, because section
402A does not provide that the special
ordering rules of section 408A(d) apply
to distributions from designated Roth
accounts, these final regulations do not
apply those special ordering rules.
Although designated Roth contributions
to a designated Roth account bear some
similarity to contributions to a Roth IRA
(e.g., contributions to either type of
account are after-tax contributions, and
qualified distributions from either type
of account are excludable from gross
income), there are many differences
between these types of arrangements.
The only special rule under section
402A for nonqualified distributions
from a designated Roth account is that
the account is treated as a separate
contract for purposes of section 72.
Thus, these final regulations do not
apply the basis recovery rules in section
408A to distributions from designated
Roth accounts. Furthermore, the limit
on elective contributions available for
hardship distribution is an aggregate
limit that takes into account both pretax elective contributions and
designated Roth contributions. For
example, an employee could take all
hardship distributions from the pre-tax
account, even though part of the amount
available for hardship is attributable to
designated Roth contributions. Thus,
the amount of elective deferrals
available for distribution from a
designated Roth account on account of
hardship generally would be a different
amount than the total designated Roth
contributions even if the ordering rule
in section 408A(d)(4) applied to
distributions from designated Roth
accounts.
Rollover of Designated Roth
Contributions
As described above in the Background
section of this preamble, section

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402(c)(2), after amendment by section
822 of PPA ‘06, provides that, if a
portion of the distribution from a plan
qualified under section 401(a) is not
includible in income (determined
without regard to the rollover), that
portion of the distribution can only be
rolled over by a direct rollover of the
distribution to another qualified plan, or
to a section 403(b) plan, that provides
for separate accounting for amounts
transferred (and earnings thereon)
including separate accounting for the
portion of such distribution which is
includible in gross income and the
portion of such distribution that is not
so includible. Alternatively, the
distribution can be rolled over to an IRA
in either a 60-day rollover or direct
rollover.
Section 402A(c)(3) provides that a
rollover contribution of a distribution
from a designated Roth account may
only be made to the extent it is
otherwise allowable. Section 402(c)(2)
provides rules regarding when a rollover
contribution of amounts not includable
in gross income are allowable. As noted
in the preamble to the proposed
regulations, the IRS and Treasury
Department believe that the rules in
section 402(c)(2) relating to the rollover
of a distribution of an amount not
includable in gross income apply to a
distribution from a designated Roth
account.1 Thus, these regulations retain
the rule in the proposed regulations
that, in order to roll over any portion of
the basis in a designated Roth account
into a designated Roth account under
another plan, the rollover of the
distribution must be accomplished
through a direct rollover (i.e., a rollover
to another designated Roth account is
not available for the portion of the
distribution not includible in gross
income if the distribution is made
directly to the employee). However, for
purposes of these regulations, the
requirement that the receiving plan
separately account for designated Roth
contributions that are rolled over has
been eliminated because such
contributions are independently subject
to the separate account requirement of
Treas. Reg. § 1.401(k)–1(f).2
1 For distributions from designated Roth
accounts, there is the same need for proper
accounting of investment in the contract as for
distributions from other accounts that include aftertax contributions. In addition, it is necessary to
track whether the employee has satisfied the 5-year
rule for qualified distributions.
2 The proposed regulations would have reflected
the rule in section 402(c)(2) prior to amendment by
PPA ‘06 that limited rollovers of distributions from
qualified plans that are not includible in gross
income to direct rollovers to other qualified trusts
and not to section 403(b) plans. These final
regulations do not retain this restriction on

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In response to comments, the final
regulations clarify that, for purposes of
these regulations, if any amount is paid
as a direct rollover, that amount is
treated as a separate distribution from
any amount paid directly to the
distributee for purposes of applying
section 402(c)(2). Finally, to insure that
there is proper accounting in the
recipient plan, as described under the
heading Reporting and Recordkeeping,
these final regulations retain the
provision in the proposed regulations
requiring the distributing plan making
the direct rollover is required to report
the amount of the investment in the
contract and the first year of the 5-year
period to the recipient plan so that the
recipient plan will not need to rely on
information from the distributee.
In response to comments, the
definition of designated Roth account
has been revised to clarify that the
definition only includes accounts under
a plan to which designated Roth
contributions are made in lieu of
elective contributions or deferrals. Thus,
the final regulations clarify that a
distribution from a designated Roth
account may only be rolled over to a
section 401(k) plan or section 403(b)
plan if that has a designated Roth
program.
As in the proposed regulations, the
final regulations provide that if the
entire amount of a distribution from a
designated Roth account is rolled over
to another designated Roth account, the
amount of the rollover contribution
allocated to investment in the contract
in the recipient designated Roth account
is the amount that would not have been
includible in gross income (determined
without regard to section 402(e)(4)) if
the distribution had not been rolled
over. Thus, if an amount that is a
qualified distribution is rolled over, the
entire amount of the rollover
contribution is allocated to investment
in the contract. In response to
comments, the final regulations clarify
that, if the entire account balance of a
designated Roth account is rolled over
to another designated Roth account,
and, at the time of the distribution, the
investment in the contract exceeds the
balance in the designated Roth account,
the investment in the contract in the
distributing plan is included in the
investment in the contract of the
recipient plan.3
rollovers because of the amendments to section
402(c) made by section 822 of PPA ‘06.
3 If the investment in the contract exceeds the
account balance and the entire account balance is
distributed (and not rolled over), see Rev. Rul. 72–
305, 1972–1 C.B. 116, for guidance concerning a
deduction for the difference.

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If a distribution from a designated
Roth account is made to an employee,
the employee is still able to roll over the
entire amount (or any portion thereof)
into a Roth IRA within a 60-day period.
Under section 402(c)(2), if only a
portion of the distribution is rolled over,
the portion that is rolled over is treated
as consisting first of the amount of the
distribution that is includible in gross
income. These final regulations, like the
proposed regulations, provide that the
income limits for contributions for Roth
IRAs do not apply for this purpose.
Alternatively, the proposed
regulations provided that the employee
is permitted to roll over the taxable
portion of the distribution to a
designated Roth account within a 60day period. In such a case, additional
reporting is required from the recipient
plan, as described below under the
heading Reporting and Recordkeeping.
In addition, the employee’s period of
participation under the distributing plan
is not carried over to the recipient plan
for purposes of determining whether the
employee satisfies the 5-taxable-year
requirement under the recipient plan.
Commentators objected to this different
treatment for indirect rollover
contributions claiming that it reduces
portability. The IRS and Treasury
Department believe that this rule is
more consistent with the statutory
language and will further encourage
direct rollover of distributions from
designated Roth accounts which will
reduce leakage of these distributions
from retirement savings solution. Thus,
this rule is retained in the final
regulations. However, the final
regulations provide that such an
indirect rollover contribution starts the
5-taxable-year period of participation
under the receiving plan for a
participant who has made no prior
designated Roth contributions to that
plan.
Determination of 5-Taxable-Year Period
After a Rollover to a Roth IRA
Section 402A and section 408A each
provide for a 5-taxable-year period that
must be completed in order for a
distribution from a designated Roth
account or a Roth IRA to be a qualified
distribution. However, each of these
sections contains different rules for
determining when the 5-taxable-year
requirement is satisfied. Generally,
under section 402A, satisfaction of the
5-taxable-year requirement with respect
to a designated Roth account under a
plan is based on the years since a
designated Roth contribution was first
made by the employee under that plan.
In contrast, the 5-year period under
section 408A begins with the first

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taxable year for which a contribution is
made to any Roth IRA.
Commentators suggested that, if a
distribution from a designated Roth
account to an individual is rolled into
a Roth IRA, the individual receive credit
under the 5-year rule in section 408A
for the years since the individual first
made a contribution to a designated
Roth account. As noted in the preamble
to the proposed regulations, the IRS and
Treasury Department do not believe that
the Code provides for this interaction
between the two 5-year rules. Thus,
these final regulations retain the rule
under the proposed regulations that the
5-taxable-year period described in
section 402A and the 5-taxable-year
period described in section
408A(d)(2)(B) are determined
independently. Thus, in the case of a
rollover of a distribution from a
designated Roth account maintained
under a section 401(k) or 403(b) plan to
a Roth IRA, the final regulations, like
the proposed regulations, provide that
the period that the rolled-over funds
were in the designated Roth account
does not count towards the 5-taxableyear period for determining qualified
distributions from the Roth IRA.
However, if an individual had
established a Roth IRA in a prior year,
the 5-year period for determining
qualified distributions from a Roth IRA
that began as a result of that earlier Roth
IRA contribution applies to any
distributions from the Roth IRA
(including a distribution of an amount
attributable to a rollover contribution
from a designated Roth account).
If a nonqualified distribution from a
designated Roth account is rolled over
into a Roth IRA, the portion of the
distribution that constitutes a
nontaxable return of investment in the
contract is treated as basis in the Roth
IRA. However, the final regulations, like
the proposed regulations, provide that,
if a qualified distribution from a
designated Roth account is rolled over
into a Roth IRA, the entire amount of
the distribution will be treated as basis
in the Roth IRA. As a result, a
subsequent distribution from the Roth
IRA in the amount of the rollover would
be treated as a tax-free return of basis
regardless of whether the individual had
maintained a Roth IRA for 5 years
(although the investment return on that
amount earned in the Roth IRA would
not be excluded from income when
distributed unless the distribution
satisfied the requirements for a qualified
distribution from a Roth IRA). Similar to
the case of a rollover to a designated
Roth account, if the entire account
balance of a designated Roth account is
distributed and some or all of the

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distribution is rolled over to a Roth IRA,
and, at the time of the distribution, the
investment in the contract exceeds the
balance in the designated Roth account,
the investment in the contract in the
distributing plan is included in the
amount treated as a contribution to the
Roth IRA.
Certain Amounts Not Qualified
Distributions
Section 1.402(c)–2, A–4, provides a
list of amounts that are not treated as
eligible rollover distributions and are
instead currently includible in income.
These final regulations, like the
proposed regulations, provide that these
same amounts also cannot be qualified
distributions. Distributions described in
A–4(a) (distribution of elective deferrals
in excess of the section 415 limits), (b)
(corrective distribution of excess
deferrals), and (c) (corrective
distribution of excess contributions or
excess aggregate contributions), have
statutorily specified tax treatments. In
the case of a deemed distribution under
section 72(p) or the cost of current life
insurance protection, an actual amount
has not in fact been distributed. In the
case of distributions of dividends
deductible under section 404(k), section
72(e)(5)(D) and § 1.404(k)–1T provide
that these amounts are treated as paid
under a separate contract providing only
for payment of deductible dividends.
However, if a dividend described in
section 404(k) has been reinvested in
accordance with section
404(k)(2)(iii)(II), then a distribution of
the reinvested amount can be a qualified
distribution.
In response to comments regarding
hardship distributions, the final
regulations clarify that an amount is not
precluded from being a qualified
distribution merely because it is
described in section 402(c)(4) as an
amount not eligible for rollover. Thus,
hardship distributions and required
minimum distributions are not
precluded from being qualified
distributions. Similarly, payments in a
stream of periodic payments are not
precluded from being qualified
distributions merely because they are
described in section 402(c)(4)(A).
Distribution of Employer Securities and
NUA
The final regulations retain the rules
of the proposed regulations relating to
the distribution of employer securities
and the application of the net
unrealized appreciation election of
section 402(e)(4). If a qualified
distribution includes employer
securities, the distribution is not
includible in gross income and the basis

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of each security in the hands of the
distributee is the fair market value of the
security on the date of the distribution.
In such a case, the distributee will
receive capital gains treatment at the
time of any future disposition of the
security, to the extent of any postdistribution appreciation. If a
distribution with respect to employer
securities is not a qualified distribution,
the rules of section 402(e)(4) apply in
the same manner as to any other
distribution except that the designated
Roth account is treated as a separate
contract.
Some commentators inquired how
these rules apply to the portion of a
nonqualified distribution that exceeds
the basis of the employer stock at the
time of the distribution to the extent not
includible in gross income as a return of
the employee’s designated Roth
contributions. As explained in Rev. Rul.
74–398, 1974–2 C.B. 136, the basis of
the stock at the time of the disposition
will be increased to reflect such amount,
so that such amount will not be
subsequently taxed as appreciation at
the time of a subsequent disposition of
the stock.
Annuity Contracts
As noted above, in the Overview
section of this preamble, these final
regulations retain the rule from the
proposed regulations that any
transaction or accounting methodology
involving an employee’s designated
Roth account and any other accounts
under the plan or plans of an employer
that has the effect of directly or
indirectly transferring value from
another account into the designated
Roth account violates the separate
accounting requirement under section
402A. Commentators asked for
additional guidance on how this
requirement is satisfied for separate
accounts maintained within a single
annuity contract, in particular how to
allocate charges for guarantees under
the contract which apply to the total of
all accounts under the contract. The IRS
and Treasury Department believe that it
may be difficult for a single contract to
have combined guarantees that apply to
both accounts without the potential for
a prohibited transfer of value between
the accounts, and have not issued
guidance on how to account for these
guarantees (including related charges).
However, this issue will continue to be
considered by the IRS and Treasury
Department. Therefore, the regulations
authorize the Commissioner to provide
additional guidance with respect to
separate accounting within an annuity
contract.

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In response to comments, these final
regulations clarify that, as previously
indicated in § 1.402(c)–2, A–10(a), a
distribution of an annuity contract from
a designated Roth account is not a
distribution event for purposes of
section 402 or 402A. Thus, in such case,
only distributions from the annuity
contract are treated as distributions for
those purposes. The determination of
whether a distribution is a qualified or
nonqualified distribution is made at the
time of the distribution from the
contract.
Reporting and Recordkeeping
These final regulations retain the rule
of the proposed regulations that the plan
administrator or other responsible party
with respect to a plan with a designated
Roth account is responsible for keeping
track of the 5-taxable-year period for
each employee and the amount of
designated Roth contributions made on
behalf of such employee. In addition,
the plan administrator or other
responsible party of a plan directly
rolling over a distribution is required to
provide the plan administrator of the
recipient plan (that is, the plan
accepting the eligible rollover
distribution) with a statement indicating
either the first year of the 5-taxable-year
period for the employee and the portion
of such distribution attributable to basis
or that the distribution is a qualified
distribution. If the distribution is not a
direct rollover to a designated Roth
account under another eligible plan, the
plan administrator or responsible party
must provide to the employee, upon
request, this same information, except
the statement need not indicate the first
year of the 5-taxable-year period. The
statement is required to be provided
within a reasonable period following the
direct rollover (or employee request),
but in no event later than 30 days
following the direct rollover (or
employee request), and the plan
administrator or other responsible party
for the recipient plan is permitted to
rely on these statements. If this
information is provided on a statement
attached to the check issued to the
employee, this requirement would be
satisfied.
As noted in the preamble, to the
extent that a portion of a distribution is
includible in income (determined
without regard to the rollover), if any
portion of that distribution is rolled over
to a designated Roth account by the
distributee rather than by direct
rollover, the plan administrator of the
recipient plan must notify the IRS of its
acceptance of the rollover contribution.
The final regulations clarify that this
reporting is only required to the extent

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provided in Forms and Instructions.
Such Instructions will specify the
address to which the notification must
be sent and will require the following
information: (1) The employee’s name
and social security number; (2) the
amount rolled over; (3) the year in
which the rollover contribution was
made; and (4) such other information as
the Commissioner may prescribe in
order to determine that the amount
rolled over is a valid rollover
contribution. Thus, until relevant Forms
and Instructions are released, no
reporting is required.
With respect to other reporting,
generally, the same reporting
requirements apply to plans with
designated Roth accounts as apply to
other plans. A contribution to and a
distribution from a designated Roth
account must be reported on Form W–
2 and Form 1099–R, ‘‘Distributions
From Pensions, Annuities, Retirement
or Profit-Sharing Plans, IRAs, Insurance
Contracts, etc.,’’ respectively, in
accordance with the instructions
thereto. An employee has no reporting
obligation with respect to designated
Roth contributions under a section
401(k) or 403(b) plan. However, an
employee rolling over a distribution
from a designated Roth account to a
Roth IRA should keep track of the
amount rolled over in accordance with
the instructions to Form 8606,
‘‘Nondeductible IRAs.’’
Designated Roth Contributions as
Excess Deferrals
Even though designated Roth
contributions are not excluded from
income when contributed, they are
treated as elective deferrals for purposes
of section 402(g). Thus, to the extent
total elective deferrals for the year
exceed the section 402(g) limit for the
year, the excess amount can be
distributed by April 15th of the year
following the year of the excess without
adverse tax consequences. However, if
such excess deferrals are not distributed
by April 15th of the year following the
year of the excess, these final
regulations, like the proposed
regulations, provide that any
distribution attributable to an excess
deferral that is a designated Roth
contribution is includible in gross
income (with no exclusion from income
for amounts attributable to basis under
section 72) and is not eligible for
rollover. These regulations provide that
if there are any excess deferrals that are
designated Roth contributions that are
not corrected prior to April 15th of the
year following the excess, the first
amounts distributed from the designated
Roth account are treated as distributions

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of excess deferrals and earnings until
the full amount of those excess deferrals
(and attributable earnings) are
distributed.
Gap Period Income
In addition, these final regulations
retain the rule in the proposed
regulations which reflected the statutory
provisions which require that any
distribution of excess deferrals include
the applicable earnings from the plan.
Unlike the existing final regulations
under section 402(g), the earnings
include income for the period after the
taxable year (gap period income). The
calculation of gap period income is
comparable to the calculation of the gap
period income for excess contributions
and excess aggregate contributions
under the 2004 final regulations under
section 401(k) and 401(m). Thus, gap
period income must be included in the
distribution of excess deferrals to the
extent the employee is or would be
credited with allocable gain or loss on
those excess deferrals for the gap period
if the total account were to be
distributed. This gap period income rule
applies to both pre-tax excess deferrals
and designated Roth contributions and
continues to apply even after the 2008
elimination of the rule for excess
contributions and excess aggregate
contributions under section 902(e)(3) of
PPA ’06.
Modifications to Final Roth 401(k)
Regulations
Some comments received in
connection with the proposed
regulations raised concerns not about
those regulations but rather about the
special rules for designated Roth
contributions in § 1.401(k)–1(f) that
were finalized in TD 9237, published on
January 3, 2006 (71 FR 6). In response
to those comments these final
regulations make two changes to those
special rules. First, these regulations
clarify and expand the rule in
§ 1.401(k)–1(f)(3)(ii) to provide that the
balance of a participant’s designated
Roth account and a participant’s other
accounts under the plan are treated as
accounts held under two separate plans
(within the meaning of section 414(l))
for purposes of applying not only the
special rule in A–11 of § 1.401(a)(31)–1
for de minimis distributions (reasonably
expected to total less than $200) but also
both the automatic rollover rules for
mandatory distributions under section
401(a)(31)(B) and the rules in A–9 and
A–10 of § 1.401(a)(31)–1 on the extent to
which plans must allow split
distributions. Thus, for example, if a
participant has less than $1,000 in the
participant’s designated Roth account

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and less than $1,000 in the participant’s
other accounts, the plan will not need
to provide the participant with an
automatic rollover with respect to the
designated Roth account or the other
accounts even if the total accrued
benefit of the participant under the plan
exceeds $1,000.
Second, in response to comments
about compensation provided to certain
foreign missionaries, the regulations are
modified to require that an employer
treat designated Roth contribution as
not excludible from gross income as
elective deferrals rather than treated as
includible in gross income. As a result,
if section 72(f)(2) applies to a
contribution, an employee will have
basis as a result of the contribution to
the extent that contribution would have
been excludible from gross income even
if paid directly to the employee and
such amount can be treated as a
designated Roth contribution even
though such amount is income that is
not includible in taxable income. Thus,
compensation for foreign missionaries is
not precluded from being contributed to
a designated Roth account merely
because the compensation would not
have been includible in gross income if
paid directly. Finally, the regulations
clarify that, for self-employed
individuals, the requirement that a
designated Roth contribution not be
excludible from gross income as an
elective deferral for being a designated
Roth contribution is only satisfied if the
self-employed individual does not claim
a deduction for the contribution.
Commentators inquired as to whether
catch-up contributions may be
designated Roth contributions. Catch-up
contributions are treated the same as
any other elective deferrals and, thus, a
participant’s catch-up contributions
may either be pre-tax elective deferrals
or designated Roth contributions.
Finally, these final regulations revise
the special rules for designated Roth
contributions in § 1.401(k)-1(f) to reflect
the repeal in PPA ’06 of the sunset of
the provisions relating to designated
Roth contributions.
Effective Date
Section 402A applies to employees’
taxable years beginning on or after
January 1, 2006. These final regulations
under section 402A are generally
applicable for taxable years beginning
on or after January 1, 2007. However,
certain provisions in these final
regulations under section 402A are
applicable at the same time as section
402A. These include the clarification
that the separate accounting
requirement does not permit any
transaction or accounting methodology

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that transfers value between designated
Roth accounts and other accounts under
a plan and the rules relating to rollovers
to designated Roth accounts and Roth
IRAs. Similarly, these final regulations
under section 408A are applicable at the
same time as section 402A. These final
regulations also address the treatment of
rollover contributions to Roth IRAs and
designated Roth accounts.
The final regulations under section
402(g) relating to designated Roth
contributions also are applicable at the
same time as section 402A. Thus, these
final regulations are applicable for
excess deferrals for taxable years
beginning on or after January 1, 2006.
However, unlike the proposed
regulations, the rule in these final
regulations requiring distribution of gap
period income on excess deferrals
applies to excess deferrals for taxable
years beginning on or after 2007, which
are generally distributed on or after
January 1, 2008.
Special Analyses
It has been determined that these final
regulations are not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
has also been determined that 5 U.S.C.
553(b) does not apply to these
regulations. It is hereby certified that the
collection of information in these
regulations will not have a significant
economic impact on a substantial
number of small entities. This
certification is based on the fact that
most small entities that will maintain a
designated Roth account already use a
third party provider to administer the
plan and the collection of information
in these regulations, which is required
to comply with the separate accounting
and recordkeeping requirements of
section 402A(b), will only minimally
increase the third party provider’s
administrative burden with respect to
the plan. Therefore, an analysis under
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Code, the
proposed regulations preceding these
final regulations were submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on their impact on small business.
Drafting Information
The principal authors of these
regulations are R. Lisa Mojiri-Azad, Bill
Gibbs and Cathy Vohs, Office of
Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities). However, other personnel
from the IRS and Treasury Department

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21109

participated in the development of these
regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
amended as follows:

■

PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry
in numerical order to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *
Section 1.402A–1 is also issued under 26
U.S.C. 402A * * *
■ Par. 2. Section 1.401(k)–0 is amended
as follows:
■ 1. The entries for 1.401(k)–1(f)(2), (3),
(4) and (5) are revised.
■ 2. The entry for 1.401(k)–1(f)(6) is
added.

§ 1.401(k)–0

*

*

Table of contents.

*

*

*

§ 1.401(k)–1 Certain cash or deferred
arrangements.

*

*

*

*

*

(f) * * *
(1) In general.
(2) Inclusion treatment.
(3) Separate accounting required.
(4) Designated Roth contributions must
satisfy rules applicable to elective
contributions.
(i) In general.
(ii) Special rules for direct rollovers.
(5) Rules regarding designated Roth
contribution elections.
(i) Frequency of elections.
(ii) Default elections.
(6) Effective date.
■ Par. 3. Section 1.401(k)–1(f) is
amended as follows:
■ 1. Revise paragraph (f)(1)(ii) and (iii).
■ 2. Redesignate paragraphs (f)(2)
through (5) as (f)(3) through (6).
■ 3. Add a new paragraph (f)(2).
■ 4. Revise the first sentence of newly
redesignated paragraph (f)(3) and add a
sentence at the end.
■ 5. Revise the last sentence of newly
redesignated paragraph (f)(4)(ii).
■ 6. Revise newly redesignated
paragraph (f)(6).
The addition and revision to
§ 1.401(k)–1 read as follows:

§ 1.401(k)–1 Certain cash or deferred
arrangements.

*

*
*
*
*
(f) Special rules for designated Roth
contributions.
(1) * * *

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(ii) Treated by the employer as not
excludible from the employee’s gross
income (in accordance with paragraph
(f)(2) of this section);
(iii) Maintained by the plan in a
separate account (in accordance with
paragraph (f)(3) of this section).
(2) Inclusion treatment. An elective
contribution is generally treated as not
excludible from gross income if it is
treated as includible in gross income by
the employer (e.g., by treating the
contribution as wages subject to
applicable income tax withholding).
However, in the case of a self-employed
individual, an elective contribution is
treated as not excludible from gross
income only if the individual does not
claim a deduction for such amount. If an
elective contribution would not have
been includible in gross income if the
amount had been paid directly to the
employee (rather than being subject to a
cash or deferral election), the elective
contribution is nevertheless permitted
to be a designated Roth contribution,
provided the employee is entitled to
treat the amount as an investment in the
contract pursuant to section 72(f)(2).
(3) Separate accounting required.
Under the separate accounting
requirement of this paragraph (f)(3),
contributions and withdrawals of
designated Roth contributions must be
credited and debited to a designated
Roth account maintained for the
employee and the plan must maintain a
record of the employee’s investment in
the contract (that is, designated Roth
contributions that have not been
distributed) with respect to the
employee’s designated Roth account.
* * * See A–13 of § 1.402A–1 for
additional requirements for separate
accounting.
(4) * * *
(ii) * * * Moreover, a participant’s
designated Roth account and the
participant’s other accounts under a
plan are treated as accounts held under
two separate plans (within the meaning
of section 414(l)) for purposes of
applying the automatic rollover rules for
mandatory distributions under section
401(a)(31)(B)(i)(I) and the special rules
in A–9 through A–11 of § 1.401(a)(31)–
1.
*
*
*
*
*
(6) Effective date. Section 402A and
the provisions of this section 1.401(k)–
1(f) apply to taxable years beginning
after December 31, 2005.
*
*
*
*
*
■ Par. 4. Section 1.402(g)–1 is amended
as follows:
■ 1. Revise the second sentence and add
a third sentence to paragraph (a).

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2. Add new paragraphs (b)(5) and
(b)(6).
■ 3. Revise paragraph (d).
■ 4. Revise paragraph (e)(2) introductory
text.
■ 5. Revise paragraph (e)(2)(i).
■ 6. Revise the second sentence and add
a new third sentence in paragraph
(e)(3)(i)(A).
■ 7. Revise paragraph (e)(5)(i).
■ 8. Add a sentence after the last
sentence in paragraph (e)(5)(ii).
■ 9. Revise paragraph (e)(5)(iii).
■ 10. Add paragraph (e)(5)(v).
■ 11. Add paragraph (e)(8)(iv).
The additions and revisions to
§ 1.402(g)–1 read as follows:
■

§ 1.402(g)–1 Limitation on exclusion for
elective deferrals.

(a) In general. * * * Thus, an
individual’s elective deferrals in excess
of the applicable limit for a taxable year
(that is, the individual’s excess deferrals
for the year) must be included in gross
income for the year, except to the extent
the excess deferrals are comprised of
designated Roth contributions, and thus,
are already includible in gross income.
A designated Roth contribution is
treated as an excess deferral only to the
extent that the total amount of
designated Roth contributions for an
individual exceeds the applicable limit
for the taxable year or the designated
Roth contributions are identified as
excess deferrals and the individual
receives a distribution of the excess
deferrals and allocable income under
paragraph (e)(2) or (e)(3) of this section.
(b) * * *
(5) Any designated Roth contributions
described in section 402A (before
applying the limits of section 402(g) or
this section).
(6) Any elective employer
contributions to a SIMPLE retirement
account, on behalf of an employee
pursuant to a qualified salary reduction
arrangement as described in section
408(p)(2) (before applying the limits of
section 402(g) or this section).
*
*
*
*
*
(d) Applicable limit—(1) In general.
Except as provided under paragraph
(d)(2) of this section, the applicable
limit for an individual’s taxable year is
the applicable dollar amount set forth in
section 402(g)(1)(B). This applicable
dollar amount is increased for the
taxable year beginning in 2007 and later
years in the same manner as the dollar
amount under section 415(b)(1)(A) is
adjusted pursuant to section 415(d). See
§ 1.402(g)–2 for the treatment of catchup contributions described in section
414(v).
(2) Special adjustment for elective
deferrals with respect to section 403(b)

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annuity contracts for certain long-term
employees. The applicable limit for an
individual who is a qualified employee
(as defined in section 402(g)(7)(C)) and
has elective deferrals described in
paragraph (b)(3) or (5) of this section for
a taxable year is adjusted by increasing
the applicable limit otherwise
determined under paragraph (d)(1) of
this section in accordance with section
402(g)(7).
(e) * * *
(2) Correction of excess deferrals after
the taxable year. A plan may provide
that if any amount is an excess deferral
under paragraph (a) of this section:
(i) Not later than the first April 15 (or
such earlier date specified in the plan)
following the close of the individual’s
taxable year, the individual may notify
each plan under which elective
deferrals were made of the amount of
the excess deferrals received by the
plan. If any designated Roth
contributions were made to a plan, the
notification must also identify the
extent, if any, to which the excess
deferrals are comprised of designated
Roth contributions. A plan may provide
that an individual is deemed to have
notified the plan of excess deferrals
(including the portion of excess
deferrals that are comprised of
designated Roth contributions) to the
extent the individual has excess
deferrals for the taxable year calculated
by taking into account only elective
deferrals under the plan and other plans
of the same employer and the plan may
provide the extent to which such excess
deferrals are comprised of designated
Roth contributions. A plan may instead
provide that the employer may notify
the plan on behalf of the individual
under these circumstances.
*
*
*
*
*
(3) * * *
(i) * * *
(A) * * * If any designated Roth
contributions were made to a plan, the
notification must identify the extent to
which, if any, the excess deferrals are
comprised of designated Roth
contributions. A plan may provide that
an individual is deemed to have notified
the plan of excess deferrals (including
the portion of excess deferrals that are
comprised of designated Roth
contributions) for the taxable year
calculated by taking into account only
elective deferrals under the plan and
other plans of the same employer and
the plan may provide the extent to
which such excess deferrals are
comprised of designated Roth
contributions. * * *
*
*
*
*
*

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(5) Income allocable to excess
deferrals—(i) General rule. The income
allocable to excess deferrals for a taxable
year that begins on or after January 1,
2007 is equal to the sum of the allocable
gain or loss for the taxable year of the
individual and, to the extent the excess
deferrals are or will be credited with
gain or loss for the period after the close
of the taxable year and prior to the
distribution (the gap period) if the total
account were to be distributed, the
allocable gain or loss during that period.
The income allocable to excess deferrals
for a taxable year that begins before
2007 is determined using the 1.402(g)–
1(e)(5) (as it appeared in the April 1,
2006 edition of 26 CFR Part 1).
(ii) Method of allocating income.
* * * A plan will not fail to use a
reasonable method for computing the
income allocable to excess deferrals
merely because the income allocable to
excess deferrals is determined on a date
that is no more than 7 days before the
distribution.
(iii) Alternative method of allocating
taxable year income. A plan may
determine the income allocable to
excess deferrals for the taxable year by
multiplying the income for the taxable
year allocable to elective deferrals by a
fraction. The numerator of the fraction
is the excess deferrals by the employee
for the taxable year. The denominator of
the fraction is equal to the sum of:
(A) The total account balance of the
employee attributable to elective
deferrals as of the beginning of the
taxable year, plus
(B) The employee’s elective deferrals
for the taxable year.
*
*
*
*
*
(v) Alternative method for allocating
taxable year and gap period income. A
plan may determine the allocable gain
or loss for the aggregate of the taxable
year and the gap period by applying the
alternative method provided by
paragraph (e)(5)(iii) of this section to
this aggregate period. This is
accomplished by substituting the
income for the taxable year and the gap
period for the income for the taxable
year and by substituting the elective
deferrals for the taxable year and the gap
period for the elective deferrals for the
taxable year in determining the fraction
that is multiplied by that income.
*
*
*
*
*
(8) * * *
(iv) Distributions of excess deferrals
from a designated Roth account. The
rules of paragraph (e)(8)(iii) of this
section generally apply to distributions
of excess deferrals that are designated
Roth contributions and the attributable
income. Thus, if a designated Roth

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account described in section 402A
includes any excess deferrals, any
distribution of amounts attributable to
those excess deferrals are includible in
gross income (without adjustment for
any return of investment in the contract
under section 72(e)(8)). In addition,
such distributions cannot be qualified
distributions described in section
402A(d)(2) and are not eligible rollover
distributions within the meaning of
section 402(c)(4). For this purpose, if a
designated Roth account includes any
excess deferrals, any distributions from
the account are treated as attributable to
those excess deferrals until the total
amount distributed from the designated
Roth account equals the total of such
deferrals and attributable income.
*
*
*
*
*
■ Par. 5. Sections 1.402A–1 and
1.402A–2 are added to read as follows:
§ 1.402A–1

Designated Roth Accounts.

Q–1. What is a designated Roth
account?
A–1. A designated Roth account is a
separate account under a qualified cash
or deferred arrangement under a section
401(a) plan, or under a section 403(b)
plan, to which designated Roth
contributions are permitted to be made
in lieu of elective contributions, that
satisfies the requirements of § 1.401(k)–
1(f) (in the case of a section 401(a) plan).
Q–2. How is a distribution from a
designated Roth account taxed?
A–2. (a) The taxation of a distribution
from a designated Roth account depends
on whether or not the distribution is a
qualified distribution. A qualified
distribution from a designated Roth
account is not includible in the
distributee’s gross income.
(b) Except as otherwise provided in
paragraph (c) of this A–2, a qualified
distribution is a distribution that is
both—
(1) Made after the 5-taxable-year
period of participation defined in A–4
of this section has been completed; and
(2) Made on or after the date the
employee attains age 591⁄2, made to a
beneficiary or the estate of the employee
on or after the employee’s death, or
attributable to the employee’s being
disabled within the meaning of section
72(m)(7).
(c) A distribution from a designated
Roth account is not a qualified
distribution to the extent it consists of
a distribution of excess deferrals and
attributable income described in
§ 1.402(g)–1(e). See A–11 of this section
for other amounts that are not treated as
qualified distributions, including excess
contributions described in section
401(k)(8), and excess aggregate

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21111

contributions described in section
401(m)(8), and income, on any of these
excess amounts.
Q–3. How is a distribution from a
designated Roth account taxed if it is
not a qualified distribution?
A–3. Except as provided in A–11 of
this section, a distribution from a
designated Roth account that is not a
qualified distribution is taxable to the
distributee under section 402 in the case
of a plan qualified under section 401(a)
and under section 403(b)(1) in the case
of a section 403(b) plan. For this
purpose, a designated Roth account is
treated as a separate contract under
section 72. Thus, except as otherwise
provided in A–5 of this section for a
rollover, if a distribution is before the
annuity starting date, the portion of any
distribution that is includible in gross
income as an amount allocable to
income on the contract and the portion
not includible in gross income as an
amount allocable to investment in the
contract is determined under section
72(e)(8), treating the designated Roth
account as a separate contract.
Similarly, in the case of any amount
received as an annuity, if a distribution
is on or after the annuity starting date,
the portion of any annuity payment that
is includible in gross income as an
amount allocable to income on the
contract and the portion not includible
in gross income as an amount allocable
to investment in the contract is
determined under section 72(b) or (d),
as applicable, treating the designated
Roth account as a separate contract. For
purposes of section 72, designated Roth
contributions are described in section
72(f)(1) or 72(f)(2), to the extent
applicable.
Q–4. What is the 5-taxable-year period
of participation described in A–2 of this
section?
A–4. (a) The 5-taxable-year period of
participation described in A–2 of this
section for a plan is the period of 5
consecutive taxable years that begins
with the first day of the first taxable year
in which the employee makes a
designated Roth contribution to any
designated Roth account established for
the employee under the same plan and
ends when 5 consecutive taxable years
have been completed. For this purpose,
the first taxable year in which an
employee makes a designated Roth
contribution is the year in which the
amount is includible in the employee’s
gross income. Notwithstanding the
preceding, however, a contribution that
is returned as an excess deferral or
excess contribution does not begin the
5 taxable-year period of participation.
Similarly, a contribution returned as a
permissible withdrawal under section

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414(w) does not begin the 5 taxable-year
period of participation.
(b) Generally, an employee’s 5taxable-year period of participation is
determined separately for each plan
(within the meaning of section 414(l)) in
which the employee participates. Thus,
if an employee has elective deferrals
made to designated Roth accounts under
two or more plans, the employee may
have two or more different 5-taxableyear periods of participation, depending
on when the employee first had
contributions made to a designated Roth
account under each plan. However, if a
direct rollover contribution of a
distribution from a designated Roth
account under another plan is made by
the employee to the plan, the 5-taxableyear period of participation begins on
the first day of the employee’s taxable
year in which the employee first had
designated Roth contributions made to
such other designated Roth account, if
earlier than the first taxable year in
which a designated Roth contribution is
made to the plan. See A–5(c) of this
section for additional rules on
determining the start of the 5-taxableyear of participation in the case of an
indirect rollover.
(c) The beginning of the 5-taxable-year
period of participation is not
redetermined for any portion of an
employee’s designated Roth account.
This is true even if the entire designated
Roth account is distributed during the 5taxable-year period of participation and
the employee subsequently makes
additional designated Roth
contributions under the plan.
(d) The rule in paragraph (c) of this
section applies if the employee dies or
the account is divided pursuant to a
qualified domestic relations order
(QDRO), and thus, a portion of the
account is not payable to the employee
and is payable to the employee’s
beneficiary or an alternate payee. In the
case of distribution to an alternate payee
or beneficiary, generally, the age, death,
or disability of the employee is used to
determine whether the distribution to
an alternate payee or beneficiary is
qualified. However, if an alternate payee
or a spousal beneficiary rolls the
distribution into a designated Roth
account in a plan maintained by his or
her own employer, such individual’s
age, disability, or death is used to
determine whether a distribution from
the recipient plan is qualified. In
addition, if the rollover is a direct
rollover contribution to the alternate
payee’s or spousal beneficiary’s own
designated Roth account, the 5-taxableyear period of participation under the
recipient plan begins on the earlier of
the date the employee’s 5-taxable-year

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period of participation began under the
distributing plan or the date the 5taxable-year period of participation
applicable to the alternate payee’s or
spousal beneficiary’s designated Roth
account began under the recipient plan.
(e) If a designated Roth contribution is
made by a reemployed veteran for a year
of qualified military service pursuant to
section 414(u) that is before the year in
which the contribution is actually made,
the contribution is treated as having
been made in the year of qualified
military service to which the
contribution relates, as designated by
the reemployed veteran. Reemployed
veterans may identify the year of
qualified military service for which a
contribution is made for other purposes,
such as for entitlement to a match, and
the treatment for the 5-taxable-year
period of participation rule follows that
identification. In the absence of such
designation, for purposes of determining
the first year of the five years of
participation under section
402A(d)(2)(B), the contribution is
treated as relating to the first year of
qualified military service for which the
reemployed veteran could have made
designated Roth contributions under the
plan, or if later the first taxable year in
which designated Roth contributions
could be made under the plan.
Q–5. How do the taxation rules apply
to a distribution from a designated Roth
account that is rolled over?
A–5. (a) An eligible rollover
distribution from a designated Roth
account is permitted to be rolled over
into another designated Roth account or
a Roth IRA, and the amount rolled over
is not currently includible in gross
income. In accordance with section
402(c)(2), to the extent that a portion of
a distribution from a designated Roth
account is not includible in income
(determined without regard to the
rollover), if that portion of the
distribution is to be rolled over into a
designated Roth account, the rollover
must be accomplished through a direct
rollover (i.e., a 60-day rollover to
another designated Roth account is not
available for this portion of the
distribution). For this purpose, any
amount paid in a direct rollover is
treated as a separate distribution from
any amount paid directly to the
employee. If a distribution from a
designated Roth account is instead
made to the employee, the employee
would still be able to roll over the entire
amount (or any portion thereof) into a
Roth IRA within the 60-day period
described in section 402(c)(3).
(b) In the case of an eligible rollover
distribution from a designated Roth
account that is not a qualified

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distribution and not paid as a direct
rollover contribution, if less than the
entire amount of the distribution is
rolled over, the part that is rolled over
is deemed to consist first of the portion
of the distribution that is attributable to
income under section 72(e)(8).
(c) If an employee receives a
distribution from a designated Roth
account, the portion of the distribution
that would be includible in gross
income is permitted to be rolled over
into a designated Roth account under
another plan. In such a case, § 1.402A–
2, A–3, provides for additional reporting
by the recipient plan. In addition, the
employee’s period of participation
under the distributing plan is not
carried over to the recipient plan for
purposes of satisfying the 5-taxable-year
period of participation requirement
under the recipient plan. Generally, the
taxable year in which the recipient plan
accepts such rollover contribution is the
taxable year that begins the participant’s
new 5-taxable-year period of
participation. However, if the
participant is rolling over to a plan in
which the participant already has a preexisting designated Roth account with a
longer period of participation, the
starting date of the recipient account is
used to measure the participant’s 5taxable-year period of participation.
(d) The following example illustrates
the application of this A–5:
Example. Employee B receives a $14,000
eligible rollover distribution that is not a
qualified distribution from B’s designated
Roth account, consisting of $11,000 of
investment in the contract and $3,000 of
income. Within 60 days of receipt, Employee
B rolls over $7,000 of the distribution into a
Roth IRA. The $7,000 is deemed to consist
of $3,000 of income and $4,000 of investment
in the contract. Because the only portion of
the distribution that could be includible in
gross income (the income) is rolled over,
none of the distribution is includible in
Employee B’s gross income.

(e) This A–5 applies for taxable years
beginning on or after January 1, 2006.
Q–6. In the case of a rollover
contribution to a designated Roth
account, how is the amount that is
treated as investment in the contract
under section 72 determined?
A–6. (a) If a distribution from a
designated Roth account is rolled over
to another designated Roth account in a
direct rollover, the amount of the
rollover contribution allocated to
investment in the contract in the
recipient designated Roth account is the
amount that would not have been
includible in gross income (determined
without regard to section 402(e)(4)) if
the distribution had not been rolled
over. Thus, if an amount that is a

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qualified distribution is rolled over, the
entire amount of the rollover
contribution is allocated to investment
in the contract.
(b) If the entire account balance of a
designated Roth account is rolled over
to another designated Roth account in a
direct rollover, and, at the time of the
distribution, the investment in the
contract exceeds the balance in the
designated Roth account, the investment
in the contract in the distributing plan
is included in the investment in the
contract of the recipient plan.
Q–7. After a qualified distribution
from a designated Roth account has
been made, how is the remaining
investment in the contract of the
designated Roth account determined
under section 72?
A–7. (a) The portion of any qualified
distribution that is treated as a recovery
of investment in the contract is
determined in the same manner as if the
distribution were not a qualified
distribution. (See A–3 of this section)
Thus, the remaining investment in the
contract in a designated Roth account
after a qualified distribution is
determined in the same manner after a
qualified distribution as it would be
determined if the distribution were not
a qualified distribution.
(b) The following example illustrates
the application of this A–7:

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Example. Employee C receives a $12,000
distribution, which is a qualified distribution
that is attributable to the employee being
disabled within the meaning of section
72(m)(7), from C’s designated Roth account.
Immediately prior to the distribution, the
account consisted of $21,850 of investment
in the contract (i.e., designated Roth
contributions) and $1,150 of income. For
purposes of determining recovery of
investment in the contract under section 72,
the distribution is deemed to consist of
$11,400 of investment in the contract
[$12,000 × 21,850/(1,150 + 21,850)], and $600
of income [$12,000 × 1,150/(1,150 + 21,850)].
Immediately after the distribution, C’s
designated Roth account consists of $10,450
of investment in the contract and $550 of
income. This determination of the remaining
investment in the contract will be needed if
C subsequently is no longer disabled and
takes a nonqualified distribution from the
designated Roth account.

Q–8. What is the relationship between
the accounting for designated Roth
contributions as investment in the
contract for purposes of section 72 and
their treatment as elective deferrals
available for a hardship distribution
under section 401(k)(2)(B)?
A–8. (a) There is no relationship
between the accounting for designated
Roth contributions as investment in the
contract for purposes of section 72 and
their treatment as elective deferrals

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available for a hardship distribution
under section 401(k)(2)(B). A plan that
makes a hardship distribution under
section 401(k)(2)(B) from elective
deferrals that includes designated Roth
contributions must separately determine
the amount of elective deferrals
available for hardship and the amount
of investment in the contract
attributable to designated Roth
contributions for purposes of section 72.
Thus, the entire amount of a hardship
distribution is treated as reducing the
otherwise maximum distributable
amount for purposes of applying the
rule in section 401(k)(2)(B) and
§ 1.401(k)–1(d)(3)(ii) that generally
limits hardship distributions to the
principal amount of elective deferrals
made less the amount of elective
deferrals previously distributed from the
plan, even if a portion of the
distribution is treated as income under
section 72(e)(8).
(b) The following example illustrates
the application of this A–8:
Example. The facts as in the Example in
A–7 of this section, except that instead of
being disabled, Employee C is receiving a
hardship distribution. In addition, Employee
C has made elective deferrals that are not
designated Roth contributions totaling
$20,000 and has received no previous
distributions of elective deferrals from the
plan. The adjustment to the investment in the
contract is the same as in A–7 of this section,
but for purposes of determining the amount
of elective deferrals available for future
hardship distribution, the entire amount of
the distribution is subtracted from the
maximum distributable amount. Thus,
Employee C has only $29,850
($41,850¥$12,000) available for hardship
distribution from C’s designated Roth
account.

Q–9. Can an employee have more
than one separate contract for
designated Roth contributions under a
plan qualified under section 401(a) or a
section 403(b) plan?
A–9. (a) Except as otherwise provided
in paragraph (b) of this A–9, for
purposes of section 72, there is only one
separate contract for an employee with
respect to the designated Roth
contributions under a plan. Thus, if a
plan maintains one separate account for
designated Roth contributions made
under the plan and another separate
account for rollover contributions
received from a designated Roth account
under another plan (so that the rollover
account is not required to be subject to
the distribution restrictions otherwise
applicable to the account consisting of
designated Roth contributions made
under the plan), both separate accounts
are considered to be one contract for
purposes of applying section 72 to the
distributions from either account.

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21113

(b) If a separate account with respect
to an employee’s accrued benefit
consisting of designated Roth
contributions is established and
maintained for an alternate payee
pursuant to a qualified domestic
relations order and another designated
Roth account is maintained for the
employee, each account is treated as a
separate contract for purposes of section
72. The alternate payee’s designated
Roth account is also a separate contract
for purposes of section 72 with respect
to any other account maintained for that
alternate payee. Similarly, if separate
accounts are established and maintained
for different beneficiaries after the death
of an employee, the separate account for
each beneficiary is treated as a separate
contract under section 72 and is also a
separate contract with respect to any
other account maintained for that
beneficiary under the plan that is not a
designated Roth account. When the
separate account is established for an
alternate payee or for a beneficiary (after
an employee’s death), each separate
account must receive a proportionate
amount attributable to investment in the
contract.
Q–10. What is the tax treatment of
employer securities distributed from a
designated Roth account?
A–10. (a) If a distribution of employer
securities from a designated Roth
account is not a qualified distribution,
section 402(e)(4)(B) applies. Thus, in the
case of a lump-sum distribution that
includes employer securities, unless the
taxpayer elects otherwise, net
unrealized appreciation attributable to
the employer securities is not includible
in gross income; and such net
unrealized appreciation is not included
in the basis of the distributed securities
and is capital gain to the extent such
appreciation is realized in a subsequent
taxable transaction.
(b) In the case of a qualified
distribution of employer securities from
a designated Roth account, the
distributee’s basis in the distributed
securities for purposes of subsequent
disposition is their fair market value at
the time of distribution.
Q–11. Can an amount described in A–
4 of § 1.402(c)–2 with respect to a
designated Roth account be a qualified
distribution?
A–11. No. An amount described in A–
4 of § 1.402(c)–2 with respect to a
designated Roth account cannot be a
qualified distribution. Such an amount
is taxable under the rules of §§ 1.72–
16(b), 1.72(p)–1, A–11 through A–13,
1.402(g)–1(e)(8), 1.401(k)–2(b)(2)(vi),
1.401(m)–2(b)(2)(vi), or 1.404(k)–1T.
Thus, for example, loans that are treated
as deemed distributions pursuant to

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section 72(p), or dividends paid on
employer securities as described in
section 404(k) are not qualified
distributions even if the deemed
distributions occur or the dividends are
paid after the employee attains age 591⁄2
and the 5-taxable-year period of
participation defined in A–4 of this
section has been satisfied. However, if a
dividend is reinvested in accordance
with section 404(k)(2)(A)(iii)(II), the
amount of such a dividend is not
precluded from being a qualified
distribution if later distributed. Further,
an amount is not precluded from being
a qualified distribution merely because
it is described in section 402(c)(4) as an
amount not eligible for rollover. Thus, a
hardship distribution is not precluded
from being a qualified distribution.
Q–12. If any amount from a
designated Roth account is included in
a loan to an employee, do the plan
aggregation rules of section 72(p)(2)(D)
apply for purposes of determining the
total amount an employee is permitted
to borrow from the plan, even though
the designated Roth account generally is
treated as a separate contract under
section 72?
A–12. Yes. If any amount from a
designated Roth account is included in
a loan to an employee, notwithstanding
the general rule that the designated Roth
account is treated as a separate contract
under section 72, the plan aggregation
rules of section 72(p)(2)(D) apply for
purposes of determining the maximum
amount the employee is permitted to
borrow from the plan and such amount
is based on the total of the designated
Roth contribution amounts and the
other amounts under the plan. To the
extent a loan is from a designated Roth
account, the repayment requirement of
section 72(p)(2)(C) must be satisfied
separately with respect to that portion of
the loan and with respect to the portion
of the loan from other accounts under
the plan.
Q–13. Does a transaction or
accounting methodology involving an
employee’s designated Roth account
and any other accounts under the plan
or plans of an employer that has the
effect of transferring value from the
other accounts into the designated Roth
account violate the separate accounting
requirement of section 402A?
A–13. (a) Yes. Any transaction or
accounting methodology involving an
employee’s designated Roth account
and any other accounts under the plan
or plans of an employer that has the
effect of directly or indirectly
transferring value from another account
into the designated Roth account
violates the separate accounting
requirement under section 402A.

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However, any transaction that merely
exchanges investments between
accounts at fair market value will not
violate the separate accounting
requirement.
(b) In the case of an annuity contract
which contains both a designated Roth
account and any other accounts, the
Commissioner may prescribe additional
guidance of general applicability,
published in the Internal Revenue
Bulletin (see 601.601(d)(2) of this
chapter), to provide additional rules for
allocation of income, expenses, gains
and losses among the accounts under
the contract.
(c) This A–13 applies to designated
Roth accounts for taxable years
beginning on or after January 1, 2006.
Q–14. How is an annuity contract that
is distributed from a designated Roth
account treated for purposes of section
402A?
A–14. A qualified plan distributed
annuity contract within the meaning of
§ 1.402(c)–2, A–10(a) that is distributed
from a designated Roth account is not
treated as a distribution for purposes of
section 402 or 402A. Instead, the
amounts paid under the annuity
contract are treated as distributions for
purposes of sections 402 and 402A.
Thus, the period after the annuity
contract is distributed and before a
payment from the annuity contract is
made is included in determining
whether the five-year period of
participation is satisfied. Further, for
purposes of determining if a distribution
is a qualified distribution, the
determination of whether a distribution
is made on or after the date the
employee attains age 591⁄2, made to a
beneficiary or the estate of the employee
on or after the employee’s death, or
attributable to the employee’s being
disabled within the meaning of section
72(m)(7) is made based on the facts at
the time the distribution is made from
the annuity contract. Thus for example,
if an employee first makes a designated
Roth contribution to a designated Roth
account in 2006 at age 56, receives a
distributed annuity contract within the
meaning of § 1.402(c)–2, A–10(a) in
2007 purchased only with assets from
the designated Roth account, and then
receives a distribution from the contract
in 2011 at age 60, the distribution is a
qualified distribution.
Q–15. When are section 402A and this
§ 1.402A–1 applicable?
A–15. Section 402A is applicable for
taxable years beginning on or after
January 1, 2006. Except as otherwise
provided in A–5 and A–13 of this
section, the rules of this § 1.402A–1
apply for taxable years beginning on or
after January 1, 2007.

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§ 1.402A–2 Reporting and recordkeeping
requirements with respect to designated
Roth accounts.

Q–1. Who is responsible for keeping
track of the 5-taxable-year period of
participation and the investment in the
contract, i.e., the amount of unrecovered
designated Roth contributions for the
employee?
A–1. The plan administrator or other
responsible party with respect to a plan
with a designated Roth account is
responsible for keeping track of the 5taxable-year period of participation for
each employee and the amount of
investment in the contract (unrecovered
designated Roth contributions) on
behalf of such employee. For purposes
of the preceding sentence, in the
absence of actual knowledge to the
contrary, the plan administrator or other
responsible party is permitted to assume
that an employee’s taxable year is the
calendar year. In the case of a direct
rollover from another designated Roth
account, the plan administrator or other
responsible party of the recipient plan
can rely on reasonable representations
made by the plan administrator or
responsible party with respect to the
plan with the other designated Roth
account. See A–2 of this section for
statements required in the case of
rollovers.
Q–2. In the case of an eligible rollover
distribution from a designated Roth
account, what additional information
must be provided with respect to such
distribution?
A–2. (a) Pursuant to section 6047(f), if
an amount is distributed from a
designated Roth account, the plan
administrator or other responsible party
with respect to the plan must provide a
statement as described below in the
following situations—
(1) In the case of a direct rollover of
a distribution from a designated Roth
account under a plan to a designated
Roth account under another plan, the
plan administrator or other responsible
party must provide to the plan
administrator or responsible party of the
recipient plan either a statement
indicating the first year of the 5-taxableyear period described in A–1 of this
section and the portion of the
distribution that is attributable to
investment in the contract under section
72, or a statement that the distribution
is a qualified distribution.
(2) If the distribution is not a direct
rollover to a designated Roth account
under another plan, the plan
administrator or responsible party must
provide to the employee, upon request,
the same information described in
paragraph (a)(1) of this A–2, except the
statement need not indicate the first

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Federal Register / Vol. 72, No. 82 / Monday, April 30, 2007 / Rules and Regulations
year of the 5-taxable-year period
described in A–1 of the section.
(b) The statement described in
paragraph (a) of this A–2 must be
provided within a reasonable period
following the direct rollover or
distributee request but in no event later
than 30 days following the direct
rollover or distributee request.
Q–3. If a plan qualified under section
401(a) or a section 403(b) plan accepts
a 60-day rollover of earnings from a
designated Roth account, what report to
the IRS must be provided with respect
to such rollover contribution?
A–3. To the extent required in Forms
and Instructions, if a plan qualified
under section 401(a), or a section 403(b)
plan, accepts a rollover contribution
(other than a direct rollover
contribution) under section 402(c)(2), or
section 403(b)(8)(B), of the portion of a
distribution from a designated Roth
account that would have been
includable in gross income, the plan
administrator or other responsible party
for the recipient plan must notify the
Commissioner of its acceptance of the
rollover contribution no later than the
due date for filing Form 1099–R, ‘‘
Distributions From Pensions, Annuities,
Retirement or Profit-Sharing Plans,
IRAs, Insurance Contracts, etc.,.’’ The
Forms and Instructions will specify the
address to which the notification is
required to be sent and will require
inclusion of the employee’s name and
social security number, the amount
rolled over, the year in which the
rollover contribution was made, and
such other information as the
Commissioner may prescribe in order to
determine that the amount rolled over is
a valid rollover contribution.
Q–4. When is this § 1.402A–2
applicable?
A–4. The rules of this § 1.402A–2 are
applicable for taxable years beginning
on or after January 1, 2007.
■ Par. 6. Section 1.408A–10 is added to
read as follows:

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§ 1.408A–10 Coordination between
designated Roth accounts and Roth IRAs.

Q–1. Can an eligible rollover
distribution, within the meaning of
section 402(c)(4), from a designated
Roth account, as defined in A–1 of
§ 1.402A–1, be rolled over to a Roth
IRA?
A–1. Yes. An eligible rollover
distribution, within the meaning of
section 402(c)(4), from a designated
Roth account may be rolled over to a
Roth IRA. For purposes of this section,
a designated Roth account means a
designated Roth account as defined in
A–1 of § 1.402A–1.

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Q–2. Can an eligible rollover
distribution from a designated Roth
account be rolled over to a Roth IRA
even if the distributee is not otherwise
eligible to make regular or conversion
contributions to a Roth IRA?
A–2. Yes. An individual may
establish a Roth IRA and roll over an
eligible rollover distribution from a
designated Roth account to that Roth
IRA even if such individual is not
eligible to make regular contributions or
conversion contributions (as described
in section 408A(c)(2) and (d)(3),
respectively) because of the modified
adjusted gross income limits in section
408A(b)(3).
Q–3. For purposes of the ordering
rules on distributions from Roth IRAs,
what portion of a distribution from a
rollover contribution from a designated
Roth account is treated as contributions?
A–3. (a) Under section 408A(d)(4),
distributions from Roth IRAs are
deemed to consist first of regular
contributions, then of conversion
contributions, and finally, of earnings.
For purposes of section 408A(d)(4), the
amount of a rollover contribution that is
treated as a regular contribution is the
portion of the distribution that is treated
as investment in the contract under A–
6 of § 1.402A–1, and the remainder of
the rollover contribution is treated as
earnings. Thus, the entire amount of any
qualified distribution from a designated
Roth account that is rolled over into a
Roth IRA is treated as a regular
contribution to the Roth IRA.
Accordingly, a subsequent distribution
from the Roth IRA in the amount of that
rollover contribution is not includible in
gross income under the rules of A–8 of
§ 1.408A–6.
(b) If the entire account balance of a
designated Roth account is distributed
to an employee and only a portion of the
distribution is rolled over to a Roth IRA
within the 60-day period described in
section 402(c)(3), and at the time of the
distribution, the investment in the
contract exceeds the balance in the
designated Roth account, the portion of
investment in the contract that exceeds
the amount used to determine the
taxable amount of the distribution is
treated as a regular contribution for
purposes of section 408A(d)(4).
Q–4. In the case of a rollover from a
designated Roth account to a Roth IRA,
when does the 5-taxable-year period
(described in section 408A(d)(2)(B) and
A–1 of § 1.408A–6) for determining
qualified distributions from a Roth IRA
begin?
A–4. (a) The 5-taxable-year period for
determining a qualified distribution
from a Roth IRA (described in section
408A(d)(2)(B) and A–1 of § 1.408A–6)

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21115

begins with the earlier of the taxable
year described in A–2 of § 1.408A–6 or
the taxable year in which a rollover
contribution from a designated Roth
account is made to a Roth IRA. The 5taxable-year period described in this A–
4 and the 5-taxable-year period of
participation described in A–4 of
§ 1.402A–1 are determined
independently.
(b) The following examples illustrate
the application of this A–4:
Example 1. Employee D began making
designated Roth contributions under his
employer’s 401(k) plan in 2006. Employee D,
who is over age 591⁄2, takes a distribution
from D’s designated Roth account in 2008,
prior to the end of the 5-taxable-year period
of participation used to determine qualified
distributions from a designated Roth account.
The distribution is an eligible rollover
distribution and D rolls it over in accordance
with sections 402(c) and 402A(c)(3) to D’s
Roth IRA, which was established in 2003.
Any subsequent distribution from the Roth
IRA of the amount rolled in, plus earnings
thereon, would not be includible in gross
income (because it would be a qualified
distribution within the meaning of section
408A(d)(2)).
Example 2. The facts are the same as in
Example 1, except that the Roth IRA is D’s
first Roth IRA and is established with the
rollover in 2008, which is the only
contribution made to the Roth IRA. If a
distribution is made from the Roth IRA prior
to the end of the 5-taxable-year period used
to determine qualified distributions from a
Roth IRA (which begins in 2008, the year of
the rollover which established the Roth IRA)
the distribution would not be a qualified
distribution within the meaning of section
408A(d)(2), and any amount of the
distribution that exceeded the portion of the
rollover contribution that consisted of
investment in the contract is includible in
D’s gross income.
Example 3. The facts are the same as in
Example 2, except that the distribution from
the designated Roth account and the rollover
to the Roth IRA occur in 2011 (after the end
of the 5-taxable-year period of participation
used to determine qualified distributions
from a designated Roth account). If a
distribution is made from the Roth IRA prior
to the expiration of the 5-taxable-year period
used to determine qualified distributions
from a Roth IRA, the distribution would not
be a qualified distribution within the
meaning of section 408A(d)(2), and any
amount of the distribution that exceeded the
amount rolled in is includible in D’s gross
income.

Q–5. Can amounts distributed from a
Roth IRA be rolled over to a designated
Roth account as defined in A–1 of
§ 1.402A–1?
A–5. No. Amounts distributed from a
Roth IRA may be rolled over or
transferred only to another Roth IRA
and are not permitted to be rolled over
to a designated Roth account under a
section 401(a) or section 403(b) plan.

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Federal Register / Vol. 72, No. 82 / Monday, April 30, 2007 / Rules and Regulations

The same rule applies even if all the
amounts in the Roth IRA are attributable
to a rollover distribution from a
designated Roth account in a plan.
Q–6. When is this § 1.408A–10
applicable?
A–6. The rules of this § 1.408A–10
apply for taxable years beginning on or
after January 1, 2006.
PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
■ Par. 7. The authority citation for part
602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 8. In § 602.101, paragraph (b) is
amended by adding an entry for
1.402A–1 in numerical order to the table
to read in part as follows:

■

§ 602.101

*

OMB Control numbers.

*
*
(b) * * *

*

*
Current
OMB control
No.

CFR part or section where
identified and described

*
*
*
*
*
1.402A–1 ..................................
1545–1992
*

*

*

*

*

Kevin M. Brown,
Deputy Commissioner for Services and
Enforcement.
Approved: April 23, 2007.
Eric Solomon,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. E7–8125 Filed 4–27–07; 8:45 am]
BILLING CODE 4830–01–P

ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R05–OAR–2007–0138; FRL–8302–5]

Approval and Promulgation of
Implementation Plans; Illinois
Environmental Protection
Agency (EPA).
ACTION: Direct final rule.

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AGENCY:

SUMMARY: The EPA is approving the
incorporation of revised air pollution
permitting and emission standards rules
into the Illinois State Implementation
Plan (SIP). The State submitted this
request for revision to its SIP to EPA on
May 31, 2006. This approval makes the
State’s rules federally enforceable.

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This rule is effective on June 29,
2007, unless EPA receives adverse
comment by May 30, 2007. If adverse
comments are received, EPA will
publish a timely withdrawal of the
direct final rule in the Federal Register
informing the public that the rule will
not take effect.
ADDRESSES: Submit your comments,
identified by Docket ID No. EPA–R05–
OAR–2007–0138, by one of the
following methods:
1. http://www.regulations.gov: Follow
the on-line instructions for submitting
comments.
2. E-mail: [email protected].
3. Fax: (312) 886–5824.
4. Mail: Pamela Blakley, Chief, Air
Permits Section, Air Programs Branch
(AR–18J), U.S. Environmental
Protection Agency, 77 West Jackson
Boulevard, Chicago, Illinois 60604.
5. Hand Delivery: Pamela Blakley,
Chief, Air Permits Section, Air Programs
Branch (AR–18J), U.S. Environmental
Protection Agency, 77 West Jackson
Boulevard, Chicago, Illinois 60604.
Such deliveries are only accepted
during the Regional Office normal hours
of operation, and special arrangements
should be made for deliveries of boxed
information. The Regional Office official
hours of business are Monday through
Friday, 8:30 a.m. to 4:30 p.m. excluding
Federal holidays.
Instructions: Direct your comments to
Docket ID No. EPA–R05–OAR–2007–
0138. EPA’s policy is that all comments
received will be included in the public
docket without change and may be
made available online at http://
www.regulations.gov, including any
personal information provided, unless
the comment includes information
claimed to be Confidential Business
Information (CBI) or other information
whose disclosure is restricted by statute.
Do not submit information that you
consider to be CBI or otherwise
protected through http://
www.regulations.gov or e-mail. The
http://www.regulations.gov Web site is
an ‘‘anonymous access’’ system, which
means EPA will not know your identity
or contact information unless you
provide it in the body of your comment.
If you send an e-mail comment directly
to EPA without going through http://
www.regulations.gov your e-mail
address will be automatically captured
and included as part of the comment
that is placed in the public docket and
made available on the Internet. If you
submit an electronic comment, EPA
recommends that you include your
name and other contact information in
the body of your comment and with any
disk or CD–ROM you submit. If EPA
DATES:

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cannot read your comment due to
technical difficulties and cannot contact
you for clarification, EPA may not be
able to consider your comment.
Electronic files should avoid the use of
special characters, any form of
encryption, and be free of any defects or
viruses.
Docket: All documents in the docket
are listed in the http://
www.regulations.gov index. Although
listed in the index, some information is
not publicly available, e.g., CBI or other
information whose disclosure is
restricted by statute. Certain other
material, such as copyrighted material,
will be publicly available only in hard
copy. Publicly available docket
materials are available either
electronically in http://
www.regulations.gov or in hard copy at
the U.S. Environmental Protection
Agency, Region 5, Air and Radiation
Division, 77 West Jackson Boulevard,
Chicago, Illinois 60604. This Facility is
open from 8:30 a.m. to 4:30 p.m.,
Monday through Friday, excluding legal
holidays. We recommend that you
telephone Constantine Blathras at (312)
886–0671 before visiting the Region 5
office.
FOR FURTHER INFORMATION CONTACT:
Constantine Blathras, Air and Radiation
Division, Air Programs Branch, U.S.
Environmental Protection Agency,
Region 5, 77 W. Jackson Boulevard (AR–
18J), Chicago, Illinois 60604.
SUPPLEMENTARY INFORMATION:
Throughout this document, ‘‘we’’, ‘‘us’’,
or ‘‘our’’ are used to mean EPA. This
supplementary information section is
arranged as follows:
I. Questions and Answers
A. What action is EPA taking?
B. Why is EPA taking this action?
C. How do these rule changes affect current
Federal requirements?
D. Why has the State made these regulatory
changes?
E. What types of emission units are
affected by these changes?
F. How will EPA’s approval of revised
permit exemptions affect air quality?
G. Does this SIP revision contain any other
changes?
II. Statutory and Executive Order Reviews

I. Questions and Answers
A. What action is EPA taking?
We are approving two revisions to the
Illinois SIP which the State of Illinois
requested. Specifically, we are
approving the incorporation of revisions
to Title 35 of the Illinois Administrative
Code (35 IAC) 201.146, Exemptions
from State Permit Requirements into the
Illinois SIP. These revisions clarify,
modify, and add to the list of emission
units and activities which are exempt

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