The Internal Revenue Service has released final regulations that will shape the new employer-sponsored Roth retirement account programs.
R. Lisa Mojiri-Azad and Cathy A. Vohs, the IRS officials who wrote the preamble to the new regulations, warn against assuming that an employer-sponsored Roth retirement account is the same as an individual Roth retirement account.
"There are many differences between these types of arrangements," the officials write.
Section 402A of the Internal Revenue Code, the provision of the Economic Growth and Tax Relief Reconciliation Act of 2001 that is creating the employer-sponsored Roth account program, gives employers the option of allowing employees to pay federal income taxes on some or all of the income contributed to the employer's retirement savings plan. In exchange, the federal government has promised not to tax Roth account retirement benefits payments and other distributions that qualify for special tax treatment.
The new final regulations, which took effect Jan. 3, 2006, and apply to plan years beginning on or after Jan. 1, 2006, are based on a draft that the IRS issued in March.
In some ways, employer-sponsored Roth account rules are stricter than the rules governing individual Roth accounts.
The Roth IRA rules let individuals convert traditional IRAs into Roth IRAs, but Section 402A does not let employees convert traditional employer-sponsored retirement accounts into Roth accounts, Mojiri-Azad and Vohs write.
