Full Version: $100,000 Adjusted Gross Income Restriction Applies to Roth 401(k) to Roth IRA Rollovers in 2008 and 2009
I just saw this today. What should be done about a highly paid individual who rolled a Roth 401(k) account to a Roth IRA just a few weeks ago in an in-service withdrawal? Can he simply roll it back to the 401(k)?
The potential problem starts in 2008.
Ah. Thank you. I overlooked the info re the problem years.
1.408A-10 Q/A 2 seems to contradict the assertion that those over the AGI limits cannot roll over their Roth 401(k) accounts to a Roth IRA. What is the reasoning behind the claim that they cannot in 2008 and 2009, and why doesn't this provision in the final regs take care of the problem?
The Deloitte article would appear to be misleading; as the consequences were unintended. That being said, the unintended consequences of Code Sections 408A©(3)(B) and 408A(d)(3)(B), as amended by PPA (P.L. 109-280) needs to be addressed by adding "or designated Roth account" after "other than a Roth IRA" in both of those Code Sections. Amounts transferred from DRAs to a Roth IRA are not conversions to which the $100,000 MAGI conversion limits should apply. See Treas. Reg. 1.408A-10, Q&A-2, which states:
Code Section 408A9c)(3)(B)
Note. The last cross reference is incorrect, it should read "408A©(3)."
From Treasury Regulations 1.402A-1, Q&A-5
From 408A©(3)(B)--(Emphesis added.)
From 408A(d)(3)(A)-(B)--
Code Section 408A9c)(3)(B)
QUOTE
Q-2. Can an eligible rollover distribution from a designated Roth account be rolled over to a Roth IRA even if the distributee is not otherwise eligible to make regular or conversion contributions to a Roth IRA?
A-2. Yes. An individual may establish a Roth IRA and roll over an eligible rollover distribution from a designated Roth account to that Roth IRA even if such individual is not eligible to make regular contributions or conversion contributions (as described in section 408A©(2) and (d)(3), respectively) because of the modified adjusted gross income limits in section 408A(b)[c](3).
A-2. Yes. An individual may establish a Roth IRA and roll over an eligible rollover distribution from a designated Roth account to that Roth IRA even if such individual is not eligible to make regular contributions or conversion contributions (as described in section 408A©(2) and (d)(3), respectively) because of the modified adjusted gross income limits in section 408A(b)[c](3).
Note. The last cross reference is incorrect, it should read "408A©(3)."
From Treasury Regulations 1.402A-1, Q&A-5
QUOTE
Q-5. How do the taxation rules apply to a distribution from a designated Roth account that is rolled over?
A-5. (a) An eligible rollover distribution from a designated Roth account is permitted to be rolled over into another designated Roth account or a Roth IRA, and the amount rolled over is not currently includable in gross income. In accordance with section 402©(2), to the extent that a portion of a distribution from a designated Roth account is not includible in income (determined without regard to the rollover), if that portion of the distribution is to be rolled over into a designated Roth account, the rollover must be accomplished through a direct rollover (i.e., a 60 day rollover to another designated Roth account is not available for this portion of the distribution). For this purpose, any amount paid in a direct rollover is treated as a separate distribution from any amount paid directly to the employee. If a distribution from a designated Roth account is instead made to the employee, the employee would still be able to roll over the entire amount (or any portion thereof) into a Roth IRA within the 60-day period described in section 402©(3).
A-5. (a) An eligible rollover distribution from a designated Roth account is permitted to be rolled over into another designated Roth account or a Roth IRA, and the amount rolled over is not currently includable in gross income. In accordance with section 402©(2), to the extent that a portion of a distribution from a designated Roth account is not includible in income (determined without regard to the rollover), if that portion of the distribution is to be rolled over into a designated Roth account, the rollover must be accomplished through a direct rollover (i.e., a 60 day rollover to another designated Roth account is not available for this portion of the distribution). For this purpose, any amount paid in a direct rollover is treated as a separate distribution from any amount paid directly to the employee. If a distribution from a designated Roth account is instead made to the employee, the employee would still be able to roll over the entire amount (or any portion thereof) into a Roth IRA within the 60-day period described in section 402©(3).
From 408A©(3)(B)--(Emphesis added.)
QUOTE
Caution: Code section 408A©(3)(B), before repeal by TIPRA (P.L. 109-222), applies to tax years beginning before January 1, 2010.
(B) Rollover from IRA
A taxpayer shall not be allowed to make a qualified rollover contribution to a Roth IRA from an individual retirement plan other than a Roth IRA during any taxable year if, for the taxable year of the distribution to which such contribution relates--
(i) the taxpayer's adjusted gross income exceeds $100,000, or
(ii) the taxpayer is a married individual filing a separate return.
Caution: Code section 408A©(3)(B), as amended by PPA (P.L. 109-280), applies to distributions after December 31, 2007, and to tax years beginning before January 1, 2010.
(B) Rollover from eligible retirement plan
A taxpayer shall not be allowed to make a qualified rollover contribution to a Roth IRA from an an eligible retirement plan (as defined by section 402©(8)(B)) other than a Roth IRA during any taxable year if, for the taxable year of the distribution to which such contribution relates--
(i) the taxpayer's adjusted gross income exceeds $100,000, or
(ii) the taxpayer is a married individual filing a separate return.
Caution: Code section 408A©(3)(B), below, as redesignated and amended by P.L. 109-222, applies to tax years beginning after December 31, 2009.
(B) Definitions-- For purposes of this paragraph--
(i) adjusted gross income shall be determined in the same manner as under section 219(g)(3), except that any amount included in gross income under subsection (d)(3) shall not be taken into account, and
(ii) the applicable dollar amount is--
(I) in the case of a taxpayer filing a joint return, $150,000,
(II) in the case of any other taxpayer (other than a married individual filing a separate return), $95,000, and
(III) in the case of a married individual filing a separate return, zero.
(B) Rollover from IRA
A taxpayer shall not be allowed to make a qualified rollover contribution to a Roth IRA from an individual retirement plan other than a Roth IRA during any taxable year if, for the taxable year of the distribution to which such contribution relates--
(i) the taxpayer's adjusted gross income exceeds $100,000, or
(ii) the taxpayer is a married individual filing a separate return.
Caution: Code section 408A©(3)(B), as amended by PPA (P.L. 109-280), applies to distributions after December 31, 2007, and to tax years beginning before January 1, 2010.
(B) Rollover from eligible retirement plan
A taxpayer shall not be allowed to make a qualified rollover contribution to a Roth IRA from an an eligible retirement plan (as defined by section 402©(8)(B)) other than a Roth IRA during any taxable year if, for the taxable year of the distribution to which such contribution relates--
(i) the taxpayer's adjusted gross income exceeds $100,000, or
(ii) the taxpayer is a married individual filing a separate return.
Caution: Code section 408A©(3)(B), below, as redesignated and amended by P.L. 109-222, applies to tax years beginning after December 31, 2009.
(B) Definitions-- For purposes of this paragraph--
(i) adjusted gross income shall be determined in the same manner as under section 219(g)(3), except that any amount included in gross income under subsection (d)(3) shall not be taken into account, and
(ii) the applicable dollar amount is--
(I) in the case of a taxpayer filing a joint return, $150,000,
(II) in the case of any other taxpayer (other than a married individual filing a separate return), $95,000, and
(III) in the case of a married individual filing a separate return, zero.
From 408A(d)(3)(A)-(B)--
QUOTE
3) Rollovers from an IRA other than a Roth IRA
(A) In general
Notwithstanding section 408(d)(3), in the case of any distribution to which this paragraph applies--
(i) there shall be included in gross income any amount which would be includible were it not part of a qualified rollover contribution,
(ii) section 72(t) shall not apply, and
(iii) unless the taxpayer elects not to have this clause apply for any taxable year, any amount required to be included in gross income for such taxable year by reason of this paragraph for any distribution before January 1, 1999, shall be so included ratably over the 4-taxable year period beginning with such taxable year.
Any election under clause (iii) for any distributions during a taxable yar may not be changed after the due date for such taxable year.
(B) Distributions to which paragraph applies
This paragraph shall apply to a distribution from an individual retirement plan (other than a Roth IRA) maintained for the benefit of an individual which is contributed to a Roth IRA maintained for the benefit of such individual in a qualified rollover contribution.
(A) In general
Notwithstanding section 408(d)(3), in the case of any distribution to which this paragraph applies--
(i) there shall be included in gross income any amount which would be includible were it not part of a qualified rollover contribution,
(ii) section 72(t) shall not apply, and
(iii) unless the taxpayer elects not to have this clause apply for any taxable year, any amount required to be included in gross income for such taxable year by reason of this paragraph for any distribution before January 1, 1999, shall be so included ratably over the 4-taxable year period beginning with such taxable year.
Any election under clause (iii) for any distributions during a taxable yar may not be changed after the due date for such taxable year.
(B) Distributions to which paragraph applies
This paragraph shall apply to a distribution from an individual retirement plan (other than a Roth IRA) maintained for the benefit of an individual which is contributed to a Roth IRA maintained for the benefit of such individual in a qualified rollover contribution.
From the technical explanation of PPA 06 relating to Roth IRA direct rollovers:
The provision allows distributions from tax-qualified retirement plans, tax-sheltered
annuities, and governmental 457 plans to be rolled over directly from such plan into a Roth IRA,
subject to the present law rules that apply to rollovers from a traditional IRA into a Roth IRA.
For example, a rollover from a tax-qualified retirement plan into a Roth IRA is includible in
gross income (except to the extent it represents a return of after-tax contributions), and the 10-
percent early distribution tax does not apply. Similarly, an individual with AGI of $100,000 or
more could not roll over amounts from a tax-qualified retirement plan directly into a Roth IRA.
It appears that maybe the reg is a little too broad at least for tax years 2008 and 2009.
The provision allows distributions from tax-qualified retirement plans, tax-sheltered
annuities, and governmental 457 plans to be rolled over directly from such plan into a Roth IRA,
subject to the present law rules that apply to rollovers from a traditional IRA into a Roth IRA.
For example, a rollover from a tax-qualified retirement plan into a Roth IRA is includible in
gross income (except to the extent it represents a return of after-tax contributions), and the 10-
percent early distribution tax does not apply. Similarly, an individual with AGI of $100,000 or
more could not roll over amounts from a tax-qualified retirement plan directly into a Roth IRA.
It appears that maybe the reg is a little too broad at least for tax years 2008 and 2009.
AK, it would appear that rollovers and transfers from designated Roth accounts are treated differently than rollovers and transfers of non-DRA accounts. The unintended consequenes of the PPA changes to generally allow direct rollovers from qualified plan accounts, will require a technical correction for DRAs not to be subject to the $100,000 AGI limit.
It should be noted that the original DRA rules were enacted as part of EGTRA in 2001. See IRC 402A. Until the changes were made by the PPA to Code Section 408A for direct rollovers, the statute addresed rollovers from "individual retirement plan other than a Roth IRA."
It should be noted that the original DRA rules were enacted as part of EGTRA in 2001. See IRC 402A. Until the changes were made by the PPA to Code Section 408A for direct rollovers, the statute addresed rollovers from "individual retirement plan other than a Roth IRA."
Q Would the language of IRC 408A©(3)(B) effective for 2008-09 prevent the automatic rollover of account balances not exceeding 5,000 to an IRA for plan participants whose AGI exceeds 100k?
Has there been any correction or guidance on how to fix this problem since these last posts?
Per IRS Notice 2008-30, it remains the same. http://www.irs.gov/pub/irs-drop/n-08-30.pdf
In addition, for taxable years beginning before January 1, 2010, an individual can not make a qualified rollover contribution from an eligible retirement plan other than a Roth IRA if, for the year the eligible rollover distribution is made, he or she has modified adjusted gross income (“MAGI”) exceeding $100,000 or is married and files a separate return.
In addition, for taxable years beginning before January 1, 2010, an individual can not make a qualified rollover contribution from an eligible retirement plan other than a Roth IRA if, for the year the eligible rollover distribution is made, he or she has modified adjusted gross income (“MAGI”) exceeding $100,000 or is married and files a separate return.
QUOTE (masteff @ Jul 3 2008, 10:09 AM) 
Per IRS Notice 2008-30, it remains the same. http://www.irs.gov/pub/irs-drop/n-08-30.pdf
In addition, for taxable years beginning before January 1, 2010, an individual can not make a qualified rollover contribution from an eligible retirement plan other than a Roth IRA if, for the year the eligible rollover distribution is made, he or she has modified adjusted gross income (“MAGI”) exceeding $100,000 or is married and files a separate return.
In addition, for taxable years beginning before January 1, 2010, an individual can not make a qualified rollover contribution from an eligible retirement plan other than a Roth IRA if, for the year the eligible rollover distribution is made, he or she has modified adjusted gross income (“MAGI”) exceeding $100,000 or is married and files a separate return.
This will be fixed by HR 6382, passed by the House and now with the Senate. It is a technical corrections bill for PPA. Treas. Reg. 1.408A-10 allows the rollover or direct rollover of designated Roth assets to a Roth IRA regardless of income. However, PPA messed that up from a statutory standpoint. The technical corrections bill will fix it, if they ever finally pass the thing.
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