Towers Watson Analyzes Rollover Guidance

In “IRS Issues Favorable Guidance on Allocation of Aftertax Benefits in Rollovers,” Towers Watson explains that:

“In Notice 2014-54, the IRS allows retirement plan participants to avoid current taxation on distributions that include aftertax amounts by rolling over pretax amounts directly to an individual retirement account (IRA) or employer plan and directing aftertax amounts into a Roth IRA (or taking them in cash). The rules apply to participants, beneficiaries and alternate payees in defined benefit, defined contribution, 403(b) and governmental 457(b) plans. The allocation procedure avoids the complexities of a pro rata allocation approach the IRS had previously required for direct rollovers that included aftertax amounts.”

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