Distribution and "Buy Back". How is Roth Handled?

[buckaroo]

We have a plan where a participant took a distribution of funds (including Roth funds) and rolled the funds into an IRA. Three years later, the participant has been rehired and wants to "buy back" the non vested portion that was forfeited when the distribution was originally taken. The participant intends to "buy back" by issuing a check from their personal account (not using the rollover acocunt). When we receive the funds, we will deposit the appropriate amounts into the sources from which they were taken. When this is done, we indicate that the amounts of the repayment were marked as after-tax basis. The issue we are encountering has to do with the Roth funds. How should the funds redeposited into the Roth account be handled? What about earnings? If the participant meets the requirements, would the earnings be Roth qualified? Should the "buy back" amount, attributed to the Roth section, be deposited into an alternative account? Is it possible that the participant will "double up" on the Roth funds because they have rolled over the Roth funds?

Not sure I explained this well, but any comments are greatly appreciated.

[12AX7]

Not sure why you need to place the buy back amounts in their orginal sources. It's all after-tax in your situation and if on a recordkeeping platform, a source for this purpose should be available.

[buckaroo]

Thanks for the reply. if the funds (at least those that go back in to restore the non-vested balances) do not go back into the sources, tracking the vesting will become very complicated. To clarify, the amounts that are restored will go back into the original sources to maintain the characteristics of those sources and will also be subject to the vesting schedule for those sources. If it is just the restored amounts, the vesting will be incorrect. This is compounded by the idea that new funds for those sources could be contributed. It would then require a whole new set of sources for the funds subject to vesting.

One thought we had was to deposit the funds back to their original sources so they would maintain proper vesting, withdrawal restrictions, etc. EXCEPT for the Roth source. We would then take the Roth source buy back amounts and deposit those in the pre-tax deferral source. (We would still note the basis for each.)

Thoughts?

[12AX7]

I thought your concern was only with the Roth portion of the account , but you bring up the vesting issue which is another complexity with or without the original sourcing. Is the account on a platform recordkeeping system? If you're doing the source recordkeeping in-house, you have a good understanding of this issue. If it's recordkept, you may need to discuss if their system can handle the calculation of the vested amount, assuming they are reporting it on statements and potentially paying out the account at some future time again, if less than 100% vested.