The IRS recently issued new regulations on disbursements from designated Roth accounts to other destinations, although these final regulations were mostly the same as what was proposed in 2014, which stated that a direct rollover does not need to be treated as a separate distribution from an amount paid to an employee.
If part of an eligible distribution from a designated Roth account is rolled into a designated Roth account that is in another plan, those funds should not be distributed to the employee. Instead, they should be rolled into the other plan and that new plan is required to account for the amount separately. Meanwhile, if a distribution is made to the employee, that individual is able to roll over that amount into a Roth IRA within 60 days. If only a partial distribution is rolled, the remaining amount should be considered the first of the amount of the distribution included in gross income.
As a general rule, every distribution from an account other than annuities should include a pro-rata share of post-tax and before-tax amounts if a qualified plan participant’s balance includes both amounts.
The newly finalized regulations impact any distributions made on or after January 1, 2016. They eliminated a sentence that offered the separate distribution rule. For distributions made prior to the start of the year, the final regulations offer that the separate distribution rule still applies unless a taxpayer chooses not to apply it for any distributions made on or after September 18, 2014.
For questions on how these changes impact your distributions, contact you professional tax advisor at Daszkal Bolton.
