This GMS Flash Alert reports on final regulations (T.D. 9769) that modify rules on the tax treatment of disbursements from designated Roth accounts to multiple destinations.
On May 17, 2016, the United States Treasury Department and the Internal Revenue Service (IRS) issued final regulations (T.D. 9769)1 that modify rules on the tax treatment of disbursements from designated Roth accounts to multiple destinations.
These final regulations eliminate the “separate distribution rule,” which required a plan participant to treat each disbursement from a designated Roth account that is directly rolled over to an eligible retirement plan as a separate distribution from any amount paid directly to the participant. Whereas the “separate distribution rule” allocated pre-tax and after-tax amounts pro rata to each separate destination, the final regulations allocate pre-tax amounts first to the direct rollover. This change should enable retirement plan participants to more easily transfer after-tax savings from their retirement plans to Roth individual accounts.
The final regulations are substantively similar to rules provided in proposed regulations and related IRS Notice 2014-552 in that they eliminate the “separate distribution rule.” For all distributions made on or after January 1, 2016,3 taxpayers may direct after-tax and pre-tax amounts that are simultaneously disbursed to multiple destinations, applying the same allocation rules to distributions from designated Roth accounts that apply to distributions from other types of accounts.
The final regulations also provide a transition rule for distributions made prior to January 1, 2016, which preserves the separate distribution rule for any distributions made on or after September 18, 2014, unless a taxpayer elects to follow the allocation rules applicable to distributions made on or after January 1, 2016.
The final regulations became effective upon publication in the Federal Register on May 18, 2016.4
For a related story in KPMG’s TaxNewsFlash-United States “Final regulations: Disbursements from designated Roth accounts to multiple destinations,” (May 17, 2016), click, here.
The above information is not intended to be "written advice concerning one or more Federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.
The information contained in this newsletter was submitted by the KPMG International member firm in the United States.
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.KPMG International Cooperative (“KPMG International”) is a Swiss entity.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.