Retiree Tax Planning for Designated Roth Accounts
Practical Tax Strategies, Vol. 86, No. 3, March 2011
Posted: 13 Apr 2011 Last revised: 17 Apr 2011
Date Written: April 12, 2011
Abstract
During his or her working years, a retiree may have elected after-tax contributions to a designated Roth account administered within a 401(k) plan or a 403(b) tax-sheltered annuity (TSA). As usual for such plans, neither the plan nor the retiree is required to pay tax currently on income earned by the Roth account. In addition, "qualified" distributions from the Roth account are not taxable.
The tax law first authorized designated Roth accounts in 2006. However, because nontaxable distributions from Roth accounts are conditioned on a five-year waiting period, 2011 is the first year any participants may take nontaxable withdrawals from their accounts. In addition, beginning in 2010, employers may authorize taxable rollover contributions from non-Roth accounts to Roth accounts. Furthermore, beginning in 2011, state or local governments may for the first time establish Roth programs as part of eligible state or local government plans. This Article offers a closer look at Roth accounts and the tax planning opportunities they offer.
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