Designated Roth Contributions to Cash or Deferred Arrangements Under Section 401(k), 6-11 [05-24495]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 71, Number 1 (Tuesday, January 3, 2006)]
[Rules and Regulations]
[Pages 6-11]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-24495]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9237]
RIN 1545-BE05


Designated Roth Contributions to Cash or Deferred Arrangements 
Under Section 401(k)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains amendments to the regulations under 
section 401(k) and (m) of the Internal Revenue Code. These regulations 
provide guidance concerning the requirements for designated Roth 
contributions under qualified cash or deferred arrangements described 
in section 401(k). These regulations affect section 401(k) plans that 
provide for designated Roth contributions and participants eligible to 
make elective contributions under these plans.

DATES: Effective Date: These regulations are effective January 1, 2006. 
Applicability Date: These regulations apply to plan years beginning on 
or after January 1, 2006.

FOR FURTHER INFORMATION CONTACT: Cathy A. Vohs, 202-622-6090 or R. Lisa 
Mojiri-Azad, 202-622-6060 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-1930.
    The collection of information in these regulations is in 26 CFR 
1.401(k)-1(f)(1)&(2). This information is required to comply with the 
separate accounting and recordkeeping requirements of section 402A.
    The estimated annual burden per respondent under control number 
1545-1930 is 1 hour.
    Comments concerning the accuracy of this burden estimate and 
suggestions for reducing this burden should be sent to the Internal 
Revenue Service, Attn: IRS Reports Clearance Officer, SE:CAR:MP:T:T:SP 
Washington, DC 20224, and to the Office of Management and Budget, Attn: 
Desk Officer for the Department of the Treasury, Office of

[[Page 7]]

Information and Regulatory Affairs, Washington, DC 20503.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents might become material in the 
administration of any Internal Revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR Part 1) under section 401(k) and (m) of the Internal Revenue Code 
of 1986 (Code). The amendments provide guidance on designated Roth 
contributions under section 402A of the Code, added by section 617(a) 
of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Pub. 
L. 107-16, 115 Stat. 38) (EGTRRA).
    Section 401(k) provides that a profit-sharing, stock bonus, pre-
ERISA money purchase or rural cooperative plan will not fail to qualify 
under section 401(a) merely because it contains a qualified cash or 
deferred arrangement. Contributions made at the election of an employee 
under a qualified cash or deferred arrangement are known as elective 
contributions. Generally, such elective contributions are not 
includible in gross income at the time contributed and are sometimes 
referred to as pre-tax elective contributions.
    Under section 402A, effective for tax years beginning on or after 
January 1, 2006, a plan may permit an employee who makes elective 
contributions under a qualified cash or deferred arrangement to 
designate some or all of those contributions as designated Roth 
contributions. Designated Roth contributions are elective contributions 
under a qualified cash or deferred arrangement that, unlike pre-tax 
elective contributions, are currently includible in gross income. 
However, a qualified distribution of designated Roth contributions is 
excludable from gross income.
    Although designated Roth contributions under a qualified cash or 
deferred arrangement bear some similarity to contributions to a Roth 
IRA described in section 408A (e.g., contributions to either type of 
account are after-tax contributions and qualified distributions from 
either type of account are excludable from gross income), there are 
many differences between these types of arrangements. For example, 
under section 408A(c)(3), an individual is ineligible to make Roth IRA 
contributions if his or her modified adjusted gross income exceeds 
certain limits, but section 402A does not impose any comparable income 
limits on an individual's eligibility to make designated Roth 
contributions under a qualified cash or deferred arrangement. In 
addition, under section 408A(d)(3), a traditional IRA may be converted 
to a Roth IRA, but section 402A does not provide for a conversion of a 
pre-tax elective contribution account under a qualified cash or 
deferred arrangement to a designated Roth account. Also, under section 
408A(d)(4), specific ordering rules apply to distributions from Roth 
IRAs. Section 402A, however, does not provide a specific ordering rule 
for distributions from designated Roth accounts, so section 72 applies 
to determine the character of distributions from such accounts.
    On December 29, 2004, final regulations under section 401(k) were 
issued (69 FR 78144). Those regulations generally apply to plan years 
beginning on or after January 1, 2006, although they also may be 
applied to plan years ending after December 29, 2004. Under those final 
regulations, Sec.  1.401(k)-1(f) was reserved for special rules for 
designated Roth contributions. On March 2, 2005, proposed regulations 
to fill in that reserved paragraph and provide additional rules 
applicable to designated Roth contributions were issued (70 FR 10062). 
Written public comments were received on the proposed regulations and 
public reaction to the proposed regulations generally was favorable. 
After consideration of the comments, these final regulations adopt the 
provisions of the proposed regulations with certain modifications, the 
most significant of which are highlighted below.

Explanation of Provisions

Rules Relating to Designated Roth Contributions

    These final regulations retain the special rules which were 
included in the proposed regulations relating to designated Roth 
contributions under a section 401(k) plan. Thus, these final 
regulations amend Sec.  1.401(k)-1(f) to provide a definition of 
designated Roth contributions and special rules with respect to such 
contributions. Under these final regulations, designated Roth 
contributions are defined as elective contributions under a qualified 
cash or deferred arrangement that are: (1) Designated irrevocably by 
the employee at the time of the cash or deferred election as designated 
Roth contributions that are being made in lieu of all or a portion of 
the pre-tax elective contributions the employee is otherwise eligible 
to make under the plan; (2) treated by the employer as includible in 
the employee's gross income at the time the employee would have 
received the contribution amounts in cash if the employee had not made 
the cash or deferred election (e.g., by treating the contributions as 
wages subject to applicable withholding requirements); and (3) 
maintained by the plan in a separate account. The regulations also 
provide that elective contributions may only be treated as designated 
Roth contributions to the extent permitted under the plan.
    Some commentators requested that an employer sponsoring a qualified 
cash or deferred arrangement be permitted to offer only designated Roth 
contributions. However, under section 402A(b)(1), designated Roth 
contributions are made in lieu of all or a portion of elective 
contributions that the employee is otherwise eligible to make under the 
cash or deferred arrangement. If a cash or deferred arrangement offered 
only designated Roth contributions, an employee participating in the 
arrangement would not be electing to make such contributions in lieu of 
elective contributions he or she was otherwise eligible to make under 
the plan. Thus, these final regulations clarify that, in order to 
provide for designated Roth contributions, a qualified cash or deferred 
arrangement must also offer pre-tax elective contributions.

Separate Accounting Requirement

    These final regulations also retain the rule that, under the 
separate accounting requirement, contributions and withdrawals of 
designated Roth contributions must be credited and debited to a 
designated Roth account maintained for the employee and the plan must 
maintain a record of the employee's investment in the contract (i.e., 
designated Roth contributions that have not been distributed) with 
respect to the employee's designated Roth account. In addition, gains, 
losses, and other credits or charges must be separately allocated on a 
reasonable and consistent basis to the designated Roth account and 
other accounts under the plan. The proposed regulations provided that 
forfeitures may not be allocated to the designated Roth account. The 
final regulations retain this rule and, in response to comments, 
clarify that no contributions other than designated Roth contributions 
and rollover contributions described in

[[Page 8]]

section 402A(c)(3)(B) are permitted to be allocated to a designated 
Roth account. For example, matching contributions are not permitted to 
be allocated to a designated Roth account. The final regulations also 
retain the rule that the separate accounting requirement applies at the 
time the designated Roth contribution is contributed to the plan and 
must continue to apply until the designated Roth account is completely 
distributed.

Other Rules

    These final regulations retain the requirement that a designated 
Roth contribution must satisfy the requirements applicable to any other 
elective contributions made under a qualified cash or deferred 
arrangement. Thus, designated Roth contributions are subject to the 
nonforfeitability and distribution restrictions applicable to elective 
contributions and are taken into account under the actual deferral 
percentage test (ADP test) of section 401(k)(3) in the same manner as 
pre-tax elective contributions. Similarly, designated Roth 
contributions may be treated as catch-up contributions and serve as the 
basis for a participant loan.
    A number of commentators discussed the application of section 
401(a)(9) to plans to which designated Roth contributions are made. 
These commentators pointed out that under section 408A, Roth IRAs are 
not subject to the rules of section 401(a)(9)(A) (i.e., Roth IRAs are 
not subject to the rules of section 401(a)(9) while the Roth IRA owner 
is alive). Although Roth IRAs are not subject to section 401(a)(9) 
while the IRA owner is alive, section 402A does not provide comparable 
rules regarding the application of section 401(a)(9) to designated Roth 
accounts under a cash or deferred arrangement. Thus, such designated 
Roth accounts are subject to the rules of section 401(a)(9)(A) and (B) 
in the same manner as pre-tax elective contributions.
    In response to comments asking for clarification, the final 
regulations provide rules regarding elections to make designated Roth 
contributions. These rules specifically provide that the rules in Sec.  
1.401(k)-1(e)(2)(ii) regarding frequency of elections to make pre-tax 
elective contributions also apply to elections to make designated Roth 
contributions. The rules also specifically address automatic enrollment 
and permit a plan to utilize automatic enrollment in conjunction with 
designated Roth contributions. Under the final regulations, a plan that 
provides for a cash or deferred election under which contributions are 
made in the absence of an affirmative election and that has both pre-
tax elective contributions and designated Roth contributions must set 
forth the extent to which those default contributions are pre-tax 
elective contributions or designated Roth contributions. If the default 
contributions are designated Roth contributions, then an employee who 
has not made an affirmative election is deemed to have irrevocably 
designated the contributions (in accordance with section 402A(c)(1)(B)) 
as designated Roth contributions.
    A number of commentators addressed direct rollovers of amounts from 
a designated Roth account. In response to these comments, the 
regulations clarify that a direct rollover from a designated Roth 
account under a qualified cash or deferred arrangement may only be made 
to another designated Roth account under an applicable retirement plan 
described in section 402A(e)(1) or to a Roth IRA described in section 
408A, and only to the extent the direct rollover is permitted under the 
rules of section 402(c). In addition, a plan is permitted to treat the 
balance of the participant's designated Roth account and the 
participant's other accounts under the plan as accounts held under two 
separate plans (within the meaning of section 414(l)) for purposes of 
applying the special rule in A-11 of Sec.  1.401(a)(31)-1 (under which 
a plan will satisfy section 401(a)(31) even though the plan 
administrator does not permit any distributee to elect a direct 
rollover with respect to eligible rollover distributions during a year 
that are reasonably expected to total less than $200). Thus, if a 
participant's balance in the designated Roth account is less than $200, 
then the plan is not required to offer a direct rollover election with 
respect to that account or to apply the automatic rollover provisions 
of section 401(a)(31)(B) with respect to that account.
    Section 1.401(k)-2 contains correction methods that may be used 
when a plan fails to satisfy the ADP test for a year. These final 
regulations retain the rule in the proposed regulations relating to 
these correction methods that permits a highly compensated employee 
(HCE), as defined in section 414(q), with elective contributions for a 
year that include both pre-tax elective contributions and designated 
Roth contributions to elect whether excess contributions are to be 
attributed to pre-tax elective contributions or designated Roth 
contributions. There is no requirement that the plan provide this 
option, and a plan may provide for one of the correction methods 
described in the final regulations without permitting an HCE to make 
such an election.
    These final regulations also retain the rule that a distribution of 
excess contributions is not includible in gross income to the extent it 
represents a distribution of designated Roth contributions. However, 
the income allocable to a corrective distribution of excess 
contributions that are designated Roth contributions is includible in 
gross income in the same manner as income allocable to a corrective 
distribution of excess contributions that are pre-tax elective 
contributions. The regulations also provide a similar rule under the 
correction methods that may be used when a plan fails to satisfy the 
actual contribution percentage (ACP) test in Sec.  1.401(m)-2.

Additional Plan Terms

    In addition to the rules relating to section 401(k) and (m) 
discussed above, there are other aspects of designated Roth 
contributions that would be reflected in plan terms and are not 
addressed in these regulations. For example, while a plan is permitted 
to allow an employee to elect the character of a distribution (i.e., 
whether the distribution will be made from the designated Roth account 
or other accounts), the extent to which a plan so permits must be set 
forth in the terms of the plan.

Certain Issues Addressed in Proposed Regulations

    These final regulations do not provide guidance with respect to the 
taxation of distributions of designated Roth contributions. For 
example, the regulations do not provide guidance with respect to the 
recovery of an employee's investment in the contract associated with 
his or her designated Roth contributions. Proposed regulations under 
section 402A, to be issued in the near future, address these taxation 
issues.

Effective Date

    Section 402A is effective for an employee's taxable years beginning 
after December 31, 2005. These regulations have the same effective date 
as the regulations under section 401(k) that they are amending. Thus, 
these final regulations are generally applicable to plan years 
beginning on or after January 1, 2006. If a plan is applying the 
section 401(k) regulations as of an earlier effective date (as provided 
under those regulations), to the extent that section 402A is effective, 
that same early effective date applies to these regulations. For a plan 
that has an effective date for the section 401(k) regulations that is 
after the effective date of section 402A (either an employer that

[[Page 9]]

does not have a calendar year plan or a plan established pursuant to a 
collective bargaining agreement that has a delayed effective date for 
the section 401(k) regulations), the employer may rely on these 
regulations prior to the effective date of the final section 401(k) 
regulations for the plan, even if the plan does not otherwise implement 
the section 401(k) regulations earlier than required.
    These regulations do not provide rules for the application of the 
EGTRRA sunset provision (section 901 of EGTRRA), under which the 
provisions of EGTRRA do not apply to taxable, plan, or limitation years 
beginning after December 31, 2010. Unless the EGTRRA sunset provision 
is repealed before it becomes effective, additional guidance will be 
needed to clarify its application.

Special Analyses

    It has been determined that these regulations are not a significant 
regulatory action as defined in Executive Order 12866. Therefore, a 
regulatory assessment is not required. It has also been determined that 
5 U.S.C. 553(b) does not apply to these regulations. It is hereby 
certified that the collection of information in these regulations will 
not have a significant economic impact on a substantial number of small 
entities. This certification is based on the fact that most small 
entities that maintain a section 401(k) plan use a third party provider 
to administer the plan. Therefore, an analysis under the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to 
section 7805(f) of the Code, the proposed regulations preceding these 
regulations were submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

Drafting Information

    The principal authors of these regulations are R. Lisa Mojiri-Azad 
and Cathy A. Vohs of the Office of the Division Counsel/Associate Chief 
Counsel (Tax Exempt and Government Entities). However, other personnel 
from the IRS and Treasury participated in the development of these 
regulations.

List of Subjects

26 CFR Part 1 (1.401-0--1.420-1)

    Bonds; Employee benefit plans; Income taxes; Pensions; Reporting 
and recordkeeping requirements; Securities; Trusts and trustees.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.401(k)-0 is amended as follows:
    1. The entry for Sec.  1.40(k)-1(f) is revised and entries for 
Sec.  1.401(k)-1(f)(1), (2), (3), (4) and (5) are added.
    2. An entry for Sec.  1.401(k)-2(b)(2)(vi)(C) is added.
    The additions read as follows:


Sec.  1.401(k)-0  Table of contents.

* * * * *


Sec.  1.401(k)-1  Certain cash or deferred arrangements.

* * * * *
    (f) Special rules for designated Roth contributions.
    (1) In general.
    (2) Separate accounting required.
    (3) Designated Roth contributions must satisfy rules applicable to 
elective contributions.
    (i) In general.
    (ii) Special rules for direct rollovers.
    (4) Rules regarding designated Roth contribution elections.
    (i) Frequency of elections.
    (ii) Default elections.
    (5) Effective date.
    (i) In general.
    (ii) Sunset provisions.
* * * * *


Sec.  1.401(k)-2  ADP test.

* * * * *
    (b) * * *
    (2) * * *
    (vi) * * *
    (C) Corrective distributions attributable to designated Roth 
contributions.
* * * * *

0
Par. 3. Section 1.401(k)-1(f) is revised as follows:


Sec.  1.401(k)-1  Certain cash or deferred arrangements.

* * * * *
    (f) Special rules for designated Roth contributions--(1) In 
general. The term designated Roth contribution means an elective 
contribution under a qualified cash or deferred arrangement that, to 
the extent permitted under the plan, is--
    (i) Designated irrevocably by the employee at the time of the cash 
or deferred election as a designated Roth contribution that is being 
made in lieu of all or a portion of the pre-tax elective contributions 
the employee is otherwise eligible to make under the plan;
    (ii) Treated by the employer as includible in the employee's gross 
income at the time the employee would have received the amount in cash 
if the employee had not made the cash or deferred election (e.g., by 
treating the contributions as wages subject to applicable withholding 
requirements); and
    (iii) Maintained by the plan in a separate account (in accordance 
with paragraph (f)(2) of this section).
    (2) Separate accounting required. Under the separate accounting 
requirement of this paragraph (f)(2), contributions and withdrawals of 
designated Roth contributions must be credited and debited to a 
designated Roth account maintained for the employee and the plan must 
maintain a record of the employee's investment in the contract (i.e., 
designated Roth contributions that have not been distributed) with 
respect to the employee's designated Roth account. In addition, gains, 
losses, and other credits or charges must be separately allocated on a 
reasonable and consistent basis to the designated Roth account and 
other accounts under the plan. However, forfeitures may not be 
allocated to the designated Roth account and no contributions other 
than designated Roth contributions and rollover contributions described 
in section 402A(c)(3)(B) may be allocated to such account. The separate 
accounting requirement applies at the time the designated Roth 
contribution is contributed to the plan and must continue to apply 
until the designated Roth account is completely distributed.
    (3) Designated Roth contributions must satisfy rules applicable to 
elective contributions--(i) In general. A designated Roth contribution 
must satisfy the requirements applicable to elective contributions made 
under a qualified cash or deferred arrangement. Thus, for example, a 
designated Roth contribution must satisfy the requirements of 
paragraphs (c) and (d) of this section and is treated as an employer 
contribution for purposes of sections 401(a), 401(k), 402, 404, 409, 
411, 412, 415, 416 and 417. In addition, the designated Roth 
contributions are treated as elective contributions for purposes of the 
ADP test. Similarly, the designated Roth account under the plan is 
subject to the rules of section 401(a)(9)(A) and (B) in the same manner 
as an account that contains pre-tax elective contributions.

[[Page 10]]

    (ii) Special rules for direct rollovers. A direct rollover from a 
designated Roth account under a qualified cash or deferred arrangement 
may only be made to another designated Roth account under an applicable 
retirement plan described in section 402A(e)(1) or to a Roth IRA 
described in section 408A, and only to the extent the rollover is 
permitted under the rules of section 402(c). Moreover, a plan is 
permitted to treat the balance of the participant's designated Roth 
account and the participant's other accounts under the plan as accounts 
held under two separate plans (within the meaning of section 414(l)) 
for purposes of applying the special rule in A-11 of Sec.  
1.401(a)(31)-1 (under which a plan will satisfy section 401(a)(31) even 
though the plan administrator does not permit any distributee to elect 
a direct rollover with respect to eligible rollover distributions 
during a year that are reasonably expected to total less than $200).
    (4) Rules regarding designated Roth contribution elections--(i) 
Frequency of elections. The rules under paragraph (e)(2)(ii) of this 
section regarding frequency of elections apply in the same manner to 
both pre-tax elective contributions and designated Roth contributions. 
Thus, an employee must have an effective opportunity to make (or 
change) an election to make designated Roth contributions at least once 
during each plan year.
    (ii) Default elections--(A) In the case of a plan that provides for 
both pre-tax elective contributions and designated Roth contributions 
and in which, under paragraph (a)(3)(ii) of this section, the default 
in the absence of an affirmative election is to make a contribution 
under the cash or deferred arrangement, the plan terms must provide the 
extent to which the default contributions are pre-tax elective 
contributions and the extent to which the default contributions are 
designated Roth contributions.
    (B) If the default contributions under the plan are designated Roth 
contributions, then an employee who has not made an affirmative 
election is deemed to have irrevocably designated the contributions (in 
accordance with section 402A(c)(1)(B)) as designated Roth 
contributions.
    (5) Effective date--(i) In general. Section 402A is effective for 
taxable years beginning after December 31, 2005.
    (ii) Sunset provisions. The rules set forth in this paragraph (f) 
do not address the application of section 901 of the Economic Growth 
and Tax Relief Reconciliation Act of 2001 (Public Law 107-16; 115 Stat. 
38) (under which the amendments made by that Act do not apply to 
taxable, plan, or limitation years beginning after December 31, 2010).
* * * * *

0
Par. 4. Section 1.401(k)-2 is amended as follows:
    1. A new sentence is added after the second sentence in paragraph 
(b)(1)(ii).
    2. The last sentence in paragraph (b)(2)(vi)(B) is amended by 
adding the phrase ``, except to the extent provided in paragraph 
(b)(2)(vi)(C) of this section'' at the end.
    3. Paragraph (b)(2)(vi)(C) is added.
    The additions read as follows:


Sec.  1.401(k)-2  ADP test.

* * * * *
    (b) * * *
    (1) * * *
    (ii) * * * Similarly, a plan may permit an HCE with elective 
contributions for a year that includes both pre-tax elective 
contributions and designated Roth contributions to elect whether the 
excess contributions are to be attributed to pre-tax elective 
contributions or designated Roth contributions. * * *
* * * * *
    (2) * * *
    (vi) * * *
    (C) Corrective distributions attributable to designated Roth 
contributions. Notwithstanding paragraphs (b)(2)(vi)(A) and (B) of this 
section, a distribution of excess contributions is not includible in 
gross income to the extent it represents a distribution of designated 
Roth contributions. However, the income allocable to a corrective 
distribution of excess contributions that are designated Roth 
contributions is included in gross income in accordance with paragraph 
(b)(2)(vi)(A) or (B) of this section (i.e., in the same manner as 
income allocable to a corrective distribution of excess contributions 
that are pre-tax elective contributions).
* * * * *

0
Par. 5. Section 1.401(k)-6 is amended as follows:
    1. The definitions of ``Designated Roth account'' and ``Designated 
Roth contributions'' are added after the definition of Current year 
testing method.
    2. A new definition of ``Pre-tax elective contributions'' is added 
after the definition of Pre-ERISA money purchase pension plan.
    The additions read as follows:


Sec.  1.401(k)-6  Definitions.

* * * * *
    Designated Roth account. Designated Roth account means a separate 
account maintained by a plan to which only designated Roth 
contributions (including income, expenses, gains and losses 
attributable thereto) are made.
    Designated Roth contributions. Designated Roth contributions means 
designated Roth contributions as defined in Sec.  1.401(k)-1(f)(1).
* * * * *
    Pre-tax elective contributions. Pre-tax elective contributions 
means elective contributions under a qualified cash or deferred 
arrangement that are not designated Roth contributions.
* * * * *

0
Par. 6. Section 1.401(m)-0 is amended by adding an entry for Sec.  
1.401(m)-2(b)(2)(vi)(C) to read as follows:


Sec.  1.401(m)-0  Table of contents.

* * * * *


Sec.  1.401(m)-2  ACP test.

* * * * *
    (b) * * *
    (2) * * *
    (vi) * * *
    (C) Corrective distributions attributable to designated Roth 
contributions.
* * * * *

0
Par. 7. Section 1.401(m)-2 is amended as follows:
    1. The last sentence in paragraph (b)(2)(vi)(B) is amended by 
adding the phrase ``, or as provided in paragraph (b)(2)(vi)(C) of this 
section'' at the end.
    2. Paragraph (b)(2)(vi)(C) is added.
    The additions read as follows:


Sec.  1.401(m)-2  ACP test.

* * * * *
    (b) * * *
    (2) * * *
    (vi) * * *
    (C) Corrective distributions attributable to designated Roth 
contributions. Notwithstanding paragraphs (b)(2)(vi)(A) and (B) of this 
section, a distribution of excess aggregate contributions is not 
includible in gross income to the extent it represents a distribution 
of designated Roth contributions. However, the income allocable to a 
corrective distribution of excess aggregate contributions that are 
designated Roth contributions is taxed in accordance with paragraph 
(b)(2)(vi)(A) or (B) of this section (i.e., in the same manner as 
income allocable to a corrective distribution of excess aggregate 
contributions that are not designated Roth contributions).
* * * * *

0
Par. 8. Section 1.401(m)-5 is amended by adding a definition of 
``Designated Roth contributions'' after the definition

[[Page 11]]

of Current year testing method to read as follows:


Sec.  1.401(m)-5  Definitions.

* * * * *
    Designated Roth contributions. Designated Roth contributions means 
designated Roth contributions as defined in Sec.  1.401(k)-1(f)(1).
* * * * *

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 9. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


0
Par. 10. In Sec.  602.101, paragraph (b) is amended by adding an entry 
for ``1.401(k)-1'' in numerical order to the table to read, in part, as 
follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR part or section where identified and described       control No.
------------------------------------------------------------------------
 
                                * * * * *
1.401(k)-1..............................................       1545-1930
 
                                * * * * *
------------------------------------------------------------------------


Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: December 13, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary for Tax Policy.
[FR Doc. 05-24495 Filed 12-30-05; 8:45 am]
BILLING CODE 4830-01-P