Daily Tax Update - January 25, 2006

Today, the Treasury Department and the IRS issued proposed regulations under sections 402(g), 402A, 403(b), and 408A, regarding designated Roth contributions. Designated Roth contributions allow for employees to designate all or a portion of their elective contributions under a section 401(k) plan of a section 403(b) annuity plan as Roth contributions. These contributions would receive tax treatment much like a Roth IRA contribution, meaning that they would be contributed from after-tax income but, later, "qualified distributions" of the contributions plus earnings would be completely tax-free.

  • According to the IRS, "These proposed regulations address issues with respect to designated Roth contributions not addressed in the final regulations under section 401(k) regarding section 402A that were published in the Federal Register on January 3, 2006 (71 FR 6), including the definition of a qualified distribution, the taxation of distributions of designated Roth contributions that are not qualified, coordination of designated Roth contributions and Roth IRAs and rules for Roth contributions under section 403(b) plans."
  • For additional information, contact Anne E. Moran via email.
  • The regulations can be accessed here.  

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them.  Read  more information on Steptoe's tax practice