According to the IRS, it will implement the Roth 401K provision of EGTRRA. Under this new ruling, employees will be able to designate money in their 401K plan to be Roth contributions. This will allow employees to contribute money that has been taxed into a Roth where contributions and earnings will grow tax free until the participant retires.
Beginning in 2006, 401K plans will be permitted to allow employees to designate their contributions as Roth contributions. These Roth contributions will be subject to the same rules as Roth IRAs. This means the contributions must remain in the plan for 5 years to receive the tax free advantage. According to Martha Priddy Patterson of Deloitte Consulting, under the current law, the Roth provision will sunset at the end of 2010. This means plan participants can never enjoy the Roth benefits unless Congress extends the law. Ms. Patterson is a Contributing Editor to Thompson Publishing Group’s 401K Handbook.
The IRS provisions of the Economic Growth and Taxation Relief Reconciliation Act made the following changes affecting 401K plans:
For more information on this and other IRS news, look at the Internal Revenue Bulletin.