Employees receiving distributions from a Roth 401(k) or Roth 403(b) account have always been able to roll their funds over into a Roth IRA. Now, thanks to the Pension Protection Act of 2006, employees participating in traditional (non-Roth) 401(k) or other qualified plans, 403(b) plans, and governmental 457(b) plans can also roll their distributions over into a Roth IRA. Prior to the Act, this could only be accomplished in two steps--by first rolling the distribution over into a traditional IRA, and then converting the traditional IRA to a Roth IRA. The new rule applies to distributions received after December 31, 2007, and only applies to direct (trustee to trustee) rollovers--60 day indirect rollovers are not allowed. These rollovers are generally subject to the same rules that apply to conversions of traditional IRAs to Roth IRAs. For example, the rollover is includible in gross income (except to the extent of any after-tax contributions), and the 10% early distribution tax doesn't apply. However, taxpayers with AGI of $100,000 or more, and taxpayers who are married filing separately, can't make a direct rollover to a Roth IRA just yet. These limitations were repealed by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), but the repeal doesn't take effect until 2010. For more information on rollovers generally, see Rollovers from Employer-Sponsored Retirement Plans. To view our helpful rollover chart, see Rollover Guide. For more information on when and how employees can withdraw funds from their employer plans, see Distributions from Employer-Sponsored Retirement Plans. For more information on the Pension Protection Act of 2006, see The Pension Protection Act of 2006. |