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Roth 401 (k) Overview:

On January 1, 2006, employees can take to do their 401(k) parts on either a pre-tax or an after-tax basis or a combination of the two. The part bounds which apply to these 401(k) parts made in 2006 (whether made pre-tax or after-tax or both) are:

1. $15,000 under the basic limit, plus,
2. $5,000 additionally for employees who are age 50 or older.

•The employer stays responsible for withholding federal income tax (and state and local income tax, where applicable) and any applicable paysheet taxes on the after-tax portion of each employee's 401(k) contribution.

*While no federal (or state or local, where applicable) income tax is withheld from pre-tax contributions, paysheet taxes will apply to the amounts withheld as pre-tax contributions.

•Absent further Internal Revenue Service guidance, both the pre-tax and the after-tax contributions will be reported on each employee's W-2 just as is done now. We trust that the Internal Revenue Service will (before issue of Form W-2 for the 2006 tax year) supply a new codification to utilize on Form W-2 for the after-tax portion of the contributions.

•A separate recordkeeping account must be established for each participant who wishes to do Philip Philip Philip Philip Philip Philip Philip Philip Roth 401 (k) contributions.

Rules of the Roth 401(k)

To assist with your decision, it is of import to understand the regulations of the Roth 401(k):

• Roth 401(k) accounts are required to be separate accounts - the after-tax parts cannot be combined with pre-tax contributions.

• Distributions from the Roth 401(k) will be tax free for federal income tax intents provided that both a 5-year retention time time period and a qualifying event demand are met:

a) The 5-year retention period gets with the first part to any Roth 401(k) account in the employer's plan.

b) Qualifying events are limited strictly to attainment of age 59 1/2, death, or disability.

Rollovers to a Roth 401(k) may be made from other employer sponsored Roth accounts. If involute over to a Philip Philip Roth 401(k), the 5-year retention time period gets with the earlier of the day of the month the involute over account was established, or the day of the month the receiving Roth account was established.

Our Reservations

The following is a summary of our reservations. Please contact our office for additional treatment in greater detail.

A. The Internal Revenue Service should publish counsel glade up that the determination of the five-taxable-year retention clip period is based on a calendar twelvemonth rather than the program year.

B. Requiring that the program decision maker of the receiving program to be responsible for trailing eligible rollovers of Philip Philip Philip Roth parts into a 401(k) program and the time at which a Roth part was first made would be a hindrance to accepting rollovers of Roth parts and would effectively curtail the transfer of these amounts. Participants should be responsible for trailing both the footing in the rollover account and the clip at which a Philip Philip Philip Philip Philip Philip Philip Roth part was first made.

C. Sponsors of programs that allow for Roth parts should also have got the ability to include program commissariat that set out regulations with regard to the order of account beginnings for all types of program distributions.

D. The Internal Revenue Service should publish sample or good-faith amendments that program patrons may utilize without affecting trust on anterior determination letters, presentment letters or sentiment letters as to the makings of the terms of their plans.

E. Sponsors of 401(k) programs that allow for Roth(k) parts and who desire to implement an automatic registration characteristic should be able to take whether pre-tax or Roth(k) elected parts will be the default election for participants.

F. Sponsors of 401(k) bes after that allow for Roth(k) part programs should be allowed to enforce restrictions on the ability and frequence of program participants to take between Roth(k) and pre-tax elected parts in a given calendar twelvemonth without violating Internal Revenue Service rules.

G. Type A new theoretical account Distribution Notice to take into account statistical statistical distributions of both pre-tax and designated Roth elected parts will be necessary. The current theoretical account is already 6 pages in length.

H. Type A program patron should be able to keep a program that lone allow for Philip Philip Roth parts and no pre-tax salary deferrals.

Final Note

Again, we urge that Employers and Sponsors of 401(k) Plans that are considering adopting the Roth commissariat seriously see the reserves noted above. Perhaps it may be best to allow others to race ahead and see how they fare.