Roth 401k's

[Guest rmeigs]

I’m attempting to understand one specific aspect of Roth 401k plans. Martha Priddy Patterson of Deloitte Consulting has been recently quoted regarding Roth 401k’s saying, "But regardless of the potential advantages, there is a big fly in the ointment," she warns. "The Roth 401k funds must remain in the plan for at least five years to receive the tax-free distribution treatment. But under current law, the Roth provision will sunset at the end of 2010, meaning plan participants can never enjoy the Roth benefits, if Congress does not extend the law!"

I’m not interested in a discussing of whether Congress will extend the law. What I’m interested in is getting a better understanding of how Roth 401k contributions made between 2006 and 2010 would be treated if Congress doesn’t extend.

Does anyone have an opinion on this?

[Tom Poje]

without looking at the wording of stuff, I would disagree with the comment.

If Congress does not extend the law it would simply mean no more future Roth contributions in the plan - so one would do like they do today - make Roth contributions outside the plan.

[mbozek]

Congress does not retroactively repeal income tax benefits that have been permitted under existing law. e.g., 409A effects deferrals beginning 2005, any more than there would be retroactive repeal of the increase in benefit limits in DB plans under 415. As Tom noted any change would grandfather Roth deferrals made through 2010 as was done when Congress eliminated universal IRA deductions in 1986.

[Bird]

I think the comment is technically accurate, I've heard it before, but always as a point of amusement, not a serious reason to not add a Roth 401(k) feature.

I don't think anyone knows for sure what the expiration of the law would mean, but I think it is a safe assumption that the benefits will be grandfathered for existing contributions.

(Well, a safe bet in normal circumstances, but that's about the time that the federal government will be getting increasingly desparate for funds, thanks to a brain-addled president who has borrowed large sums from Social Security and now thinks that Social Security is a problem because we owe it a lot of money...oops, that slipped out...must step off soapbox now)

[Guest Donkey Kong]

thanks to a brain-addled president who has borrowed large sums from Social Security and now thinks that Social Security is a problem because we owe it a lot of money...

This comment coming from a Bird brain?

[mbozek]

I dont know how this is technically accurate. The only change on 1/1/11 is that there will be no authorization to make Roth 401k deferrals for tax yrs beginning 1/1/11- it will not repeal the tax benefits for Roth accounts established prior to that date.

[MGB]

I am sure Martha's "audience" of where her comment is directed to is Congress to urge permanency of EGTRRA provisions (she is one of Deloitte's lobbyists in Washington), not plan sponsors trying to decide whether or not to add the provision. Of course, making the comment to plan sponsors is also directed to Congress by way of getting the plan sponsors to pressure Congress for permanence.

[Bird]

Mbozek-

I think the implication is that the sunset of the legislation means the entire authorization for the accounts and their ultimate tax-free nature disappears. Frankly, I don't know if it reads that way literally or not. As noted, it is more a point of silliness than concern.