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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

Bulletin No. 1999–8
February 22, 1999

Internal Revenue

bulletin
HIGHLIGHTS
OF THIS ISSUE

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

INCOME TAX

EMPLOYEE PLANS

T.D. 8812, page 19.
REG–121865–98, page 63.

Notice 99–11, page 56.

Final and proposed regulations under section 4980B of the
Code relate to continuation coverage requirements applicable to group health plans. A public hearing will be held on
June 8, 1999.

T.D. 8816, page 4.

Weighted average interest rate update. Guidelines for
determining the weighted average interest rate for February
1999 the weighted average interest rate and the resulting
permissible range of interest rates used to calculate current
liability for purposes of the full funding limitation of section
412(c)(7) of the Code are set forth.

Final regulations under section 408A of the Code relate to
Roth IRAs.

EXEMPT ORGANIZATIONS

T.D. 8817, page 51.

Announcement 99–15, page 78.

Final regulations under section 6038B of the Code relate to
information reporting requirements for certain transfers of
property by United States persons to foreign partnerships
and relate to reporting requirements for certain transfers of
cash to foreign corporations.

REG–106902–98, page 57.
Proposed regulations under section 1502 of the Code relate
to consolidated return regulations relating to the treatment
of overall foreign losses and separate limitation losses in the
computation of the foreign tax credit limitation.

Finding Lists begin on page 82.

Department of the Treasury
Internal Revenue Service

The list is given of organizations now classified as private
foundations.

ADMINISTRATIVE
Announcement 99–16, page 80.
New Form 8866, Interest Computation Under the Look-Back
Method for Property Depreciated under the Income Forecast
Method, is now available.

Mission of the Service
and by applying the tax law with integrity and fairness to
all.

Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities

Statement of Principles
of Internal Revenue
Tax Administration
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesitate to raise a meritorious issue. It is also important that
care be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Service
position.

The function of the Internal Revenue Service is to administer the Internal Revenue Code. Tax policy for raising revenue
is determined by Congress.
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provisions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.

Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and
with great courtesy and considerateness. It should never
try to overreach, and should be reasonable within the
bounds of law and sound administration. It should, however, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
fraud.

At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protecting the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.

2

Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.

dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).

Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.

Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumulative Bulletins.

Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and proce-

The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a quarterly and
semiannual basis, and are published in the first Bulletin of the
succeeding quarterly and semiannual period, respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

3

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 408A.—Roth IRAs
26 CFR 1.408A–1: Roth IRAs in general.

T.D. 8816
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Roth IRAs
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations
SUMMARY: This document contains
final regulations relating to Roth IRAs
under section 408A of the Internal Revenue Code (Code). Roth IRAs were created by the Taxpayer Relief Act of 1997
as a new type of IRA that individuals can
use beginning in 1998. Section 408A was
amended by the Internal Revenue Service
Restructuring and Reform Act of 1998.
On September 3, 1998, a notice of proposed rulemaking (REG–115393–98
I.R.B. 34) was published in the Federal
Register (63 F.R. 46937) under Code section 408A. Written comments were received regarding the proposed regulations. On December 10, 1998, a public
hearing was held on the proposed regulations. The final regulations affect individuals establishing Roth IRAs, beneficiaries
under Roth IRAs, and trustees, custodians
or issuers of Roth IRAs.
DATES: Effective date: The final regulations are effective on February 3, 1999.
Applicability date: The final regulations are applicable to taxable years beginning on or after January 1, 1998, the
effective date for section 408A.
FOR FURTHER INFORMATION CONTACT: Cathy A. Vohs, (202) 622-6030
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in §§1.408A–2, 1.408A–4,
1.408A–5, and 1.408A–7 of the final reg-

February 22, 1999

ulations have 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 15451616. Responses to this collection of information are mandatory.
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.
Estimated average annual burden per
respondent/recordkeeper: 1 minute for
designating an IRA as a Roth IRA and 30
minutes for recharacterizing an IRA contribution. The estimated burdens for the
other reporting/recordkeeping requirements in the these final regulations are reflected in the burden of Forms 8606,
1040, 5498, and 1099R.
Comments concerning the accuracy of
this burden estimate and suggestions for
reducing this burden should be sent to the
Office of Management and Budget,
Attn: Desk Officer for the Department of
the Treasury, Office of Information and
Regulatory Affairs, Washington, DC
20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC
20224.
Books or records relating to a collection of information must be retained as
long as their contents may 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
On September 3, 1998, a notice of proposed rulemaking was published in the
Federal Register (63 F.R. 46937) under
section 408A of the Internal Revenue
Code (Code). The proposed regulations
provide guidance on section 408A of the
Code, which was added by section 302 of
the Taxpayer Relief Act of 1997, Public
Law 105-34 (111 Stat. 788), and established the Roth IRA as a new type of individual retirement plan, effective for taxable years beginning on or after January
1, 1998. The provisions of section 408A
were amended by the Internal Revenue

4

Service Restructuring and Reform Act of
1998, Public Law 105-206 (112 Stat.
685). In addition, Notice 98–50 (1998–44
I.R.B. 10) provides guidance on reconverting an amount that had previously
been converted and recharacterized. This
notice solicited public comments concerning reconversions.
Written comments were received on the
proposed regulations and Notice 98–50.
A public hearing was held on the proposed regulations and Notice 98–50 on
December 10, 1998. After consideration
of all the comments, the proposed regulations under section 408A are adopted as
revised by this Treasury decision.
Explanation of Provisions
Overview
A Roth IRA generally is treated under
the Code like a traditional IRA with several significant exceptions. Similar to traditional IRAs, income on undistributed
amounts accumulated under Roth IRAs is
exempt from Federal income tax, and
contributions to Roth IRAs are subject to
specific limitations. Unlike traditional
IRAs, contributions to Roth IRAs cannot
be deducted from gross income, but qualified distributions from Roth IRAs are excludable from gross income.
In general, comments received on the
proposed regulations did not request significant changes. Thus, the final regulations retain the general structure and substance of the proposed regulations.
General Provisions and Establishment of
Roth IRAs
Commentators asked for clarification
regarding whether a Roth IRA may be established for the benefit of a minor child
or anyone else who lacks the legal capacity to act on his or her own behalf. On
this point, the IRS and Treasury intend
that the rules for traditional IRAs also
apply to Roth IRAs. Thus, for example, a
parent or guardian of a minor child may
establish a Roth IRA on behalf of the
minor child. However, in the case of any
contribution to a Roth IRA established for
a minor child, the compensation of the
child for the taxable year for which the
contribution is made must satisfy the

1999–8 I.R.B.

compensation requirements of section
408A(c) and §1.408A–3.
Regular Contributions
Several commentators requested clarification of the treatment of excess Roth
IRA contributions under sections 4973,
408(d)(5), and 219(f)(6). Commentators
asked for clarification regarding the removal of excess Roth IRA contributions
after the contributor’s Federal tax return
due date has passed. The final regulations
clarify that, pursuant to section 4973(f),
excess contributions may be applied, on a
year-by-year basis, against the annual
limit for regular contributions to the extent that the Roth IRA owner is eligible to
make regular Roth IRA contributions for
a taxable year but does not otherwise do
so. However, in response to several requests for clarification, the IRS and Treasury note that the rules under section
408(d)(5) for the tax- free distribution of
certain excess traditional IRA contributions after the IRA owner’s Federal income tax return due date do not apply to
Roth IRAs because Roth IRA contributions are always tax-free on distribution
(except to the extent that they accelerate
income inclusion under the 4-year
spread). Similarly, section 219(f)(6),
which provides for the deductibility of excess traditional IRA contributions in subsequent taxable years, has no application
to Roth IRAs because contributions to
Roth IRAs are never deductible.
Another commentator asked for clarification whether contributions to education
IRAs are disregarded for purposes of applying the limitation on regular contributions to Roth IRAs. No change has been
made to the final regulations on this point
because the final regulations retain the definition of an IRA provided in the proposed regulations, which excludes an education IRA under section 530. Thus,
contributions to an education IRA are disregarded in applying the Roth IRA contribution limitation (and in applying the
contribution limitation for traditional
IRAs).
Conversions
In response to certain comments, the
final regulations clarify that conversions
and recharacterizations made with the
same trustee may be accomplished by re-

1999–8 I.R.B.

designating the account or annuity contract, rather than by the opening of a new
account or the issuance of a new annuity
contract for each conversion or recharacterization.
As requested by commentators, the
final regulations provide that a change in
filing status or a divorce does not affect
the application of the 4-year spread for
1998 conversions. Thus, if a married
Roth IRA owner who is using the 4-year
spread files separately or divorces before
the full taxable conversion amount has
been included in gross income, the remainder must be included in the Roth
IRA owner’s gross income over the remaining years in the 4-year period, or, if
applicable, in the year for which the remainder is accelerated due to distribution
or death.
Two commentators questioned why the
proposed regulations require that a surviving spouse be the sole beneficiary of
all a Roth IRA owner’s Roth IRAs in
order to elect to continue application of
the 4-year spread after the Roth IRA
owner’s death. The IRS and Treasury
view this result as compelled by the statutory language of section 408A(d)(3)(E)(ii)(II). That section provides that the
surviving spouse must acquire the “entire
interest” in any Roth IRA to which a conversion contribution to which the 4-year
spread applies is “properly allocable.”
Under the aggregation and ordering rules
of section 408A(d)(4), all a Roth IRA
owner’s Roth IRAs are treated as a single
Roth IRA, and a conversion contribution
is therefore allocable to all the owner’s
Roth IRAs. Thus, a surviving spouse
must be the sole beneficiary of all a Roth
IRA owner’s Roth IRAs in order to acquire the entire interest in any Roth IRA
to which a 1998 conversion contribution
is properly allocable.
Commentators also asked the IRS and
Treasury to clarify whether Roth IRA distributions that are part of a series of substantially equal periodic payments begun
under a traditional IRA prior to conversion to a Roth IRA are subject to income
acceleration during the 4-year spread period and the 10-percent additional tax on
early distributions under section 72(t).
The final regulations clarify that those
distributions are subject to income acceleration to the extent allocable to a 1998
conversion contribution with respect to

5

which the 4-year spread applies. The
final regulations further clarify, however,
that the additional 10-percent tax under
section 72(t) will not apply, even if the
distributions are not qualified distributions (as long as they are part of a
series of substantially equal periodic
payments).
Under the proposed regulations, if an
IRA owner has reached age 70 1⁄2, any
amount distributed (or treated as distributed because of a conversion) from the
IRA for a year consists of the required
minimum distribution to the extent that an
amount equal to the required minimum
distribution for that year has not yet been
distributed (or treated as distributed); as a
required minimum distribution, that
amount cannot be converted to a Roth
IRA. Although one commentator requested that this rule be retained in the
final regulations, other commentators objected to it. A number of commentators
asked the IRS and Treasury to adopt a rule
allowing an IRA owner who wishes to
convert a traditional IRA to a Roth IRA in
the year he or she turns 701⁄2 to leave the
amount of his or her required minimum
distribution with respect to such IRA in
the IRA until April 1 of the following
year, provided the conversion is accomplished by means of a trustee-to-trustee
transfer. The commentators note that this
rule applies in the case of trustee-totrustee transfers between traditional
IRAs. The final regulations retain the rule
that the required minimum distribution
amount is ineligible for rollover, including such a distribution for the year that the
individual reaches age 701⁄2, because, pursuant to section 408A(d)(3)(C), a conversion is treated as a distribution regardless
of whether the conversion is accomplished by a trustee-to-trustee transfer.
Accordingly, the required minimum distribution amount is ineligible for rollover,
and as such, is also ineligible to be converted to a Roth IRA.
Additionally, several commentators
suggested that the rule in the proposed
regulations is inconsistent with section
401(a)(9), which generally requires that
IRA distributions begin by April 1 of the
calendar year following the calendar year
in which the IRA owner reaches age 701⁄2.
These commentators argued that, under
section 401(a)(9), distributions made during the calendar year in which the IRA

February 22, 1999

owner reaches age 701⁄2 should not be considered required minimum distributions
under sections 401(a)(9) and 408(a)(6)
and (b)(3). However, the proposed regulations under sections 401(a)(9) and
408(a)(6) and (b)(3) provide that the first
year for which distributions are required
under section 401(a)(9) is the year in
which the IRA owner reaches age 701⁄2,
and that distributions made prior to April
1 of the following calendar year are
treated as made for that first year. The
regulations under section 402(c) and the
proposed regulations under sections
401(a)(9) and 408(a)(6) and (b)(3) provide that the first amount distributed during a calendar year is treated as a required
minimum distribution to the extent that
the amount required to be distributed for
that calendar year under section 401(a)(9)
has not been distributed. For these reasons, the final regulations retain the rule
of the proposed regulations.
Recharacterizations of IRA Contributions
The final regulations clarify that the
computation of net income under §1.408–
4(c)(2)(iii) in the case of a commingled
IRA may include net losses on the amount
to be recharacterized.
Commentators asked the IRS and Treasury to clarify whether an amount converted from a SEP IRA or SIMPLE IRA
to a Roth IRA may be recharacterized
back to the SEP IRA or SIMPLE IRA
from which the amount was converted.
The final regulations provide that Roth
IRA conversion contributions from a SEP
IRA or SIMPLE IRA may be recharacterized to a SEP IRA or SIMPLE IRA (including the original SEP IRA or SIMPLE
IRA). Another commentator also asked
for clarification whether it is necessary to
track the source of assets (i.e., as employer or employee contributions) converted from a SEP IRA or SIMPLE IRA
to a Roth IRA for purposes of determining
whether such assets may be recharacterized. The prohibition on recharacterizing
employer contributions to a SEP IRA or
SIMPLE IRA set forth in the final regulations only applies to those contributions at
the time they are made to the SEP IRA or
SIMPLE IRA. Once such contributions
have been made to a SEP IRA or a SIMPLE IRA, the SEP IRA or SIMPLE IRA
may be converted to a Roth IRA and subsequently recharacterized (provided, in

February 22, 1999

the case of a SIMPLE IRA, that the twoyear rule has been satisfied prior to the
conversion).
Commentators asked for clarification
regarding whether an election to recharacterize an IRA contribution may be made
on behalf of a deceased IRA owner. The
final regulations provide that the election
to recharacterize an IRA contribution may
be made by the executor, administrator, or
other person charged with the duty of filing the decedent’s final Federal income
tax return.
Commentators also asked whether an
excess contribution to an IRA made in a
prior year, and applied against the contribution limits in the current year under
section 4973, may be recharacterized.
Only actual contributions may be recharacterized; thus, excess contributions actually made for a prior year and deemed to
be current-year contributions for purposes
of section 4973, are not contributions that
are eligible to be recharacterized (unless
the recharacterization would still be
timely with respect to the taxable year for
which the contributions were actually
made). This rule applies to any excess
contribution, whether made to a traditional or a Roth IRA.
Commentators asked for clarification
regarding a conduit IRA that is converted
to a Roth IRA and subsequently recharacterized back to a traditional IRA. The
IRS and Treasury note that a conduit IRA
that is converted to a Roth IRA and subsequently recharacterized back to a traditional IRA retains its status as a conduit
IRA because the effect of the recharacterization is to treat the amount recharacterized as though it had been transferred directly from the original conduit IRA into
another conduit IRA.
Commentators also asked whether a
recharacterization is subject to withholding. A recharacterization is not a designated distribution under section 3405 and,
therefore, is not subject to withholding.
The final regulations also provide rules
regarding the “reconversion” of an
amount that has been transferred from a
Roth IRA to a traditional IRA by means of
a recharacterization after having been earlier converted from a traditional IRA to a
Roth IRA. After publication of the proposed regulations, the IRS and Treasury
issued Notice 98–50, which provides interim rules regarding Roth IRA reconver-

6

sions made during 1998 and 1999. Notice
98-50 stated that the interim rules were
intended to clarify and supplement the
proposed regulations and permitted taxpayers to rely on those rules as if incorporated in the proposed regulations. Notice
98-50 noted that the IRS and Treasury
were considering whether the final regulations should provide that a taxpayer is
not eligible to reconvert an amount before
the end of the taxable year in which the
amount was first converted (or the due
date for that taxable year), or that a taxpayer who transfers a converted amount
back to a traditional IRA in a recharacterization must wait until the passage of a
fixed number of days before reconverting.
Although Notice 98-50 invited interested
parties to submit comments on those approaches, little comment was received on
that issue. The final regulations provide
reconversion rules for 2000 and subsequent years that generally differ from the
interim rules of Notice 98–50. However,
for 1998 and 1999, the final regulations
continue the interim rules of Notice
98–50.
Effective January 1, 2000, an IRA
owner who converts an amount from a
traditional IRA to a Roth IRA during any
taxable year and then transfers that
amount back to a traditional IRA by
means of a recharacterization may not reconvert that amount from the traditional
IRA to a Roth IRA before the beginning
of the taxable year following the taxable
year in which the amount was converted
to a Roth IRA or, if later, the end of the
30-day period beginning on the day on
which the IRA owner transfers the
amount from the Roth IRA back to a traditional IRA by means of a recharacterization. As under Notice 98–50, any
amount previously converted is adjusted
for subsequent net income in determining
the amount subject to the limitation on
subsequent reconversions.
A reconversion made before the later of
the beginning of the next taxable year or
the end of the 30-day period that begins
on the day of the recharacterization is
treated as a “failed conversion” (a distribution from the traditional IRA and a regular contribution to the Roth IRA), subject
to correction through a recharacterization
back to a traditional IRA. For these purposes, only a failed conversion resulting
from a failure to satisfy the statutory re-

1999–8 I.R.B.

quirements for a conversion (e.g., the
$100,000 modified adjusted gross income
limit) is treated as a conversion in determining when an IRA owner may make a
reconversion. Thus, an IRA owner whose
taxable year is the calendar year and who
converts an amount to a Roth IRA in 2000
and then transfers that amount back to a
traditional IRA on January 18, 2001 because his or her adjusted gross income for
2000 exceeds $100,000 cannot reconvert
that amount until February 17, 2001 (the
first day after the end of the 30-day period
beginning on the day of the recharacterization transfer) because the failed conversion made in 2000 is treated as a conversion for purposes of the reconversion
rules. However, if that IRA owner inadvertently attempts to reconvert that
amount before February 17, 2001, the attempted reconversion is not treated as a
conversion for purposes of the reconversion rules (although it is otherwise treated
as a failed conversion). Therefore, the
IRA owner could transfer the amount
back to a traditional IRA in a recharacterization and reconvert it at any time on or
after February 17, 2001. If the IRA owner
does reconvert the amount on or after
February 17, 2001, he or she cannot reconvert that amount again until 2002.
As indicated above, the final regulations continue the interim rules of Notice
98-50 applicable for 1998 and 1999.
Therefore, an IRA owner who converts an
amount from a traditional IRA to a Roth
IRA during 1998 and then transfers that
amount back to a traditional IRA by
means of a recharacterization may reconvert that amount once (but no more than
once) on or after November 1, 1998 and
on or before December 31, 1998; the IRA
owner may also reconvert that amount
once (but no more than once) during
1999. Similarly, an IRA owner who converts an amount from a traditional IRA to
a Roth IRA during 1999 that has not been
converted before and then transfers that
amount back to a traditional IRA by
means of a recharacterization may reconvert that amount once (but no more than
once) on or before December 31, 1999.
In contrast to the rule for years after 1999,
a failed conversion is not treated as a conversion for these 1998 and 1999 interim
rules.
As did Notice 98–50, the final regulations provide that a reconversion made

1999–8 I.R.B.

during 1998 or 1999 for which the IRA
owner was not eligible is deemed to be an
“excess reconversion” and does not
change the IRA owner’s taxable conversion amount. Instead, the excess reconversion and the last preceding recharacterization are not taken into account for
purposes of determining the IRA owner’s
taxable conversion amount, and the IRA
owner’s taxable conversion amount is
based on the last reconversion that was
not an excess reconversion. An excess reconversion is otherwise treated as a valid
reconversion. The final regulations
grandfather conversions and reconversions made before November 1, 1998.
Distributions
In response to concerns raised in the
comments regarding potential double taxation, the final regulations clarify that a
nonqualified distribution from a Roth
IRA is taxed only to the extent that the
amount of the distribution, when added to
all previous distributions (whether or not
they were qualified distributions) and reduced by the taxable amount of such previous distributions, exceed the owner’s
contributions to all his or her Roth IRAs.
Commentators also asked for clarification regarding whether a beneficiary may
aggregate his or her inherited Roth IRAs
with other Roth IRAs maintained by such
beneficiary. The final regulations provide
that a beneficiary’s inherited Roth IRA
may not be aggregated with any other
Roth IRA maintained by such beneficiary
(except for other Roth IRAs that the beneficiary inherited from the same decedent),
unless the beneficiary, as the spouse of
the decedent and sole beneficiary of the
Roth IRA, elects to treat the Roth IRA as
his or her own.
In addition, commentators also asked
for clarification regarding whether the 5taxable year period for determining
whether a distribution is a qualified distribution starts over for subsequent Roth
IRA contributions if the entire account
balance in a Roth IRA is distributed to the
Roth IRA owner before he or she makes
any other Roth IRA contributions. In
such a case, the 5-taxable-year period
does not start over. However, if an initial
Roth IRA contribution is made to a Roth
IRA that subsequently is revoked within 7
days, or if an initial Roth IRA contribu-

7

tion is recharacterized, the initial contribution does not start the 5-year period.
The final regulations provide that an excess contribution that is distributed in accordance with section 408(d)(4) does not
start the 5-year period.
One commentator questioned the rule
in the proposed regulations providing that
a distribution allocable to a conversion
contribution is treated as made first from
the portion (if any) that was includible in
gross income as a result of the conversion. The IRS and Treasury note that this
result is plainly compelled by section
408A(d)(4)(B)(ii). Another commentator
inquired about the treatment of all conversions as designated distributions under
section 3405; the commentator suggested
that conversions effected by means of
trustee-to- trustee transfers should not be
treated as designated distributions subject
to withholding. However, section
408A(d)(3) treats all Roth IRA conversions as distributions regardless of how
they are effected.
Reporting Requirements
The final regulations retain the reporting rules set forth in the proposed regulations.
Effective Date
The final regulations are applicable to
taxable years beginning on or after January 1, 1998, the effective date for section
408A.
Special Analyses
It has been determined that the final
regulations are not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations. Further, it is hereby certified, pursuant to sections 603(a) and 605(b) of the
Regulatory Flexibility Act, that the collection of information in these regulations
will not have a significant economic impact on a substantial number of small entities. The cost of the collection of information is insignificant because the
primary reporting burden is on the individual and not the small entity. Therefore
the collection of information will not have

February 22, 1999

a substantial economic impact. Therefore, a regulatory flexibility analysis
under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal
Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact on
small business.
Drafting Information
The principal author of the final regulations is Cathy A. Vohs, Office of Associate Chief Counsel (Employee Benefits
and Exempt Organizations). However,
other personnel from the IRS and Treasury Department participated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§1.408A–1 also issued under 26 U.S.C.
408A.
§1.408A–2 also issued under 26 U.S.C.
408A.
§1.408A–3 also issued under 26 U.S.C.
408A.
§1.408A–4 also issued under 26 U.S.C.
408A.
§1.408A–5 also issued under 26 U.S.C.
408A.
§1.408A–6 also issued under 26 U.S.C.
408A.
§1.408A–7 also issued under 26 U.S.C.
408A.
§1.408A–8 also issued under 26 U.S.C.
408A.
§1.408A–9 also issued under 26 U.S.C.
408A. * * *
Par. 2. Sections 1.408A–0 through
1.408A–9 are added to read as follows:
§1.408A–0 Roth IRAs; table of contents.
This table of contents lists the regulations relating to Roth IRAs under section

February 22, 1999

408A of the Internal Revenue Code as follows:
§1.408A–1 Roth IRAs in general.
§1.408A–2 Establishing Roth IRAs.
§1.408A–3 Contributions to Roth IRAs.
§1.408A–4 Converting amounts to Roth
IRAs.
§1.408A–5 Recharacterized contributions.
§1.408A–6 Distributions.
§1.408A–7 Reporting.
§1.408A–8 Definitions.
§1.408A–9 Effective date.
§1.408A–1 Roth IRAs in general.
This section sets forth the following
questions and answers that discuss the
background and general features of Roth
IRAs:
Q-1 What is a Roth IRA?
A-1. (a) A Roth IRA is a new type of
individual retirement plan that individuals
can use, beginning in 1998. Roth IRAs
are described in section 408A, which was
added by the Taxpayer Relief Act of 1997
(TRA 97), Public Law 105-34 (111 Stat.
788).
(b) Roth IRAs are treated like traditional IRAs except where the Internal
Revenue Code specifies different treatment. For example, aggregate contributions (other than by a conversion or other
rollover) to all an individual’s Roth IRAs
are not permitted to exceed $2,000 for a
taxable year. Further, income earned on
funds held in a Roth IRA is generally not
taxable. Similarly, the rules of section
408(e), such as the loss of exemption of
the account where the owner engages in a
prohibited transaction, apply to Roth
IRAs in the same manner as to traditional
IRAs.
Q-2. What are the significant differences between traditional IRAs and Roth
IRAs?
A-2. There are several significant differences between traditional IRAs and
Roth IRAs under the Internal Revenue
Code. For example, eligibility to contribute to a Roth IRA is subject to special
modified AGI (adjusted gross income)
limits; contributions to a Roth IRA are
never deductible; qualified distributions
from a Roth IRA are not includible in
gross income; the required minimum distribution rules under section 408(a)(6)
and (b)(3) (which generally incorporate

8

the provisions of section 401(a)(9)) do not
apply to a Roth IRA during the lifetime of
the owner; and contributions to a Roth
IRA can be made after the owner has attained age 701⁄2.
§1.408A–2 Establishing Roth IRAs.
This section sets forth the following
questions and answers that provide rules
applicable to establishing Roth IRAs:
Q-1. Who can establish a Roth IRA?
A-1. Except as provided in A-3 of this
section, only an individual can establish a
Roth IRA. In addition, in order to be eligible to contribute to a Roth IRA for a
particular year, an individual must satisfy
certain compensation requirements and
adjusted gross income limits (see
§1.408A–3 A-3).
Q-2. How is a Roth IRA established?
A-2. A Roth IRA can be established
with any bank, insurance company, or
other person authorized in accordance
with §1.408-2(e) to serve as a trustee with
respect to IRAs. The document establishing the Roth IRA must clearly designate
the IRA as a Roth IRA, and this designation cannot be changed at a later date.
Thus, an IRA that is designated as a Roth
IRA cannot later be treated as a traditional
IRA. However, see §1.408A–4 A-1(b)(3)
for certain rules for converting a traditional IRA to a Roth IRA with the same
trustee by redesignating the traditional
IRA as a Roth IRA, and see §1.408A–5
for rules for recharacterizing certain IRA
contributions.
Q-3. Can an employer or an association
of employees establish a Roth IRA to hold
contributions of employees or members?
A-3. Yes. Pursuant to section 408(c),
an employer or an association of employees can establish a trust to hold contributions of employees or members made
under a Roth IRA. Each employee’s or
member’s account in the trust is treated as
a separate Roth IRA that is subject to the
generally applicable Roth IRA rules. The
employer or association of employees
may do certain acts otherwise required by
an individual, for example, establishing
and designating a trust as a Roth IRA.
Q-4. What is the effect of a surviving
spouse of a Roth IRA owner treating an
IRA as his or her own?
A-4. If the surviving spouse of a Roth
IRA owner treats a Roth IRA as his or her

1999–8 I.R.B.

own as of a date, the Roth IRA is treated
from that date forward as though it were
established for the benefit of the surviving
spouse and not the original Roth IRA
owner. Thus, for example, the surviving
spouse is treated as the Roth IRA owner
for purposes of applying the minimum
distribution requirements under section
408(a)(6) and (b)(3). Similarly, the surviving spouse is treated as the Roth IRA
owner rather than a beneficiary for purposes of determining the amount of any
distribution from the Roth IRA that is includible in gross income and whether the
distribution is subject to the 10-percent
additional tax under section 72(t).
§1.408A–3 Contributions to Roth IRAs.
This section sets forth the following
questions and answers that provide rules
regarding contributions to Roth IRAs:
Q-1. What types of contributions are
permitted to be made to a Roth IRA?
A-1. There are two types of contributions that are permitted to be made to a
Roth IRA: regular contributions and qualified rollover contributions (including
conversion contributions). The term regular contributions means contributions
other than qualified rollover contributions.
Q-2. When are contributions permitted
to be made to a Roth IRA?
A-2. (a) The provisions of section
408A are effective for taxable years beginning on or after January 1, 1998.
Thus, the first taxable year for which contributions are permitted to be made to a
Roth IRA by an individual is the individual’s taxable year beginning in 1998.
(b) Regular contributions for a particular taxable year must generally be contributed by the due date (not including extensions) for filing a Federal income tax
return for that taxable year. (See
§1.408A–5 regarding recharacterization
of certain contributions.)
Q-3. What is the maximum aggregate
amount of regular contributions an individual is eligible to contribute to a Roth
IRA for a taxable year?
A-3. (a) The maximum aggregate
amount that an individual is eligible to
contribute to all his or her Roth IRAs as a
regular contribution for a taxable year is
the same as the maximum for traditional
IRAs: $2,000 or, if less, that individual’s
compensation for the year.

1999–8 I.R.B.

(b) For Roth IRAs, the maximum
amount described in paragraph (a) of this
A-3 is phased out between certain levels
of modified AGI. For an individual who
is not married, the dollar amount is
phased out ratably between modified AGI
of $95,000 and $110,000; for a married
individual filing a joint return, between
modified AGI of $150,000 and $160,000;
and for a married individual filing separately, between modified AGI of $0 and
$10,000. For this purpose, a married individual who has lived apart from his or her
spouse for the entire taxable year and who
files separately is treated as not married.
Under section 408A(c)(3)(A), in applying
the phase-out, the maximum amount is
rounded up to the next higher multiple of
$10 and is not reduced below $200 until
completely phased out.
(c) If an individual makes regular contributions to both traditional IRAs and
Roth IRAs for a taxable year, the maximum limit for the Roth IRA is the lesser
of—
(1) The amount described in paragraph
(a) of this A-3 reduced by the amount
contributed to traditional IRAs for the
taxable year; and
(2) The amount described in paragraph
(b) of this A-3. Employer contributions,
including elective deferrals, made under a
SEP or SIMPLE IRA Plan on behalf of an
individual (including a self-employed individual) do not reduce the amount of the individual’s maximum regular contribution.
(d) The rules in this A-3 are illustrated
by the following examples:
Example 1. In 1998, unmarried, calendar-year
taxpayer B, age 60, has modified AGI of $40,000
and compensation of $5,000. For 1998, B can contribute a maximum of $2,000 to a traditional IRA, a
Roth IRA or a combination of traditional and Roth
IRAs.
Example 2. The facts are the same as in Example
1. However, assume that B violates the maximum
regular contribution limit by contributing $2,000 to
a traditional IRA and $2,000 to a Roth IRA for 1998.
The $2,000 to B’s Roth IRA would be an excess
contribution to B’s Roth IRA for 1998 because an
individual’s contributions are applied first to a traditional IRA, then to a Roth IRA.
Example 3. The facts are the same as in Example
1, except that B’s compensation is $900. The maximum amount B can contribute to either a traditional
IRA or a Roth (or a combination of the two) for
1998 is $900.
Example 4. In 1998, unmarried, calendar-year
taxpayer C, age 60, has modified AGI of $100,000
and compensation of $5,000. For 1998, C contributes $800 to a traditional IRA and $1,200 to a

9

Roth IRA. Because C’s $1,200 Roth IRA contribution does not exceed the phased-out maximum Roth
IRA contribution of $1,340 and because C’s total
IRA contributions do not exceed $2,000, C’s Roth
IRA contribution does not exceed the maximum permissible contribution.

Q-4. How is compensation defined for
purposes of the Roth IRA contribution
limit?
A-4. For purposes of the contribution
limit described in A-3 of this section, an
individual’s compensation is the same as
that used to determine the maximum contribution an individual can make to a traditional IRA. This amount is defined in
section 219(f)(1) to include wages, commissions, professional fees, tips, and
other amounts received for personal services, as well as taxable alimony and separate maintenance payments received
under a decree of divorce or separate
maintenance. Compensation also includes earned income as defined in section 401(c)(2), but does not include any
amount received as a pension or annuity
or as deferred compensation. In addition,
under section 219(c), a married individual
filing a joint return is permitted to make
an IRA contribution by treating his or her
spouse’s higher compensation as his or
her own, but only to the extent that the
spouse’s compensation is not being used
for purposes of the spouse making a contribution to a Roth IRA or a deductible
contribution to a traditional IRA.
Q-5. What is the significance of modified AGI and how is it determined?
A-5. Modified AGI is used for purposes of the phase-out rules described in
A-3 of this section and for purposes of the
$100,000 modified AGI limitation described in §1.408A–4 A-2(a) (relating to
eligibility for conversion). As defined in
section 408A(c)(3)(C)(i), modified AGI is
the same as adjusted gross income under
section 219(g)(3)(A) (used to determine
the amount of deductible contributions
that can be made to a traditional IRA by
an individual who is an active participant
in an employer-sponsored retirement
plan), except that any conversion is disregarded in determining modified AGI. For
example, the deduction for contributions
to an IRA is not taken into account for
purposes of determining adjusted gross
income under section 219 and thus does
not apply in determining modified AGI
for Roth IRA purposes.

February 22, 1999

Q-6. Is a required minimum distribution from an IRA for a year included in income for purposes of determining modified AGI?
A-6. (a) Yes. For taxable years beginning before January 1, 2005, any required
minimum distribution from an IRA under
section 408(a)(6) and (b)(3) (which generally incorporate the provisions of section 401(a)(9)) is included in income for
purposes of determining modified AGI.
(b) For taxable years beginning after
December 31, 2004, and solely for purposes of the $100,000 limitation applicable to conversions, modified AGI does
not include any required minimum distributions from an IRA under section
408(a)(6) and (b)(3).
Q-7. Does an excise tax apply if an individual exceeds the aggregate regular
contribution limits for Roth IRAs?
A-7. Yes. Section 4973 imposes an annual 6-percent excise tax on aggregate
amounts contributed to Roth IRAs that
exceed the maximum contribution limits
described in A-3 of this section. Any contribution that is distributed, together with
net income, from a Roth IRA on or before
the tax return due date (plus extensions)
for the taxable year of the contribution is
treated as not contributed. Net income
described in the previous sentence is includible in gross income for the taxable
year in which the contribution is made.
Aggregate excess contributions that are
not distributed from a Roth IRA on or before the tax return due date (with extensions) for the taxable year of the contributions are reduced as a deemed Roth IRA
contribution for each subsequent taxable
year to the extent that the Roth IRA owner
does not actually make regular IRA contributions for such years. Section 4973
applies separately to an individual’s Roth
IRAs and other types of IRAs.
§1.408A–4 Converting amounts to Roth
IRAs.
This section sets forth the following
questions and answers that provide rules
applicable to Roth IRA conversions:
Q-1. Can an individual convert an
amount in his or her traditional IRA to a
Roth IRA?
A-1. (a) Yes. An amount in a traditional IRA may be converted to an
amount in a Roth IRA if two requirements

February 22, 1999

are satisfied. First, the IRA owner must
satisfy the modified AGI limitation described in A-2(a) of this section and, if
married, the joint filing requirement described in A-2(b) of this section. Second,
the amount contributed to the Roth IRA
must satisfy the definition of a qualified
rollover contribution in section 408A(e)
(i.e., it must satisfy the requirements for a
rollover contribution as defined in section
408(d)(3), except that the one-rolloverper-year limitation in section
408(d)(3)(B) does not apply).
(b) An amount can be converted by any
of three methods—
(1) An amount distributed from a traditional IRA is contributed (rolled over) to a
Roth IRA within the 60-day period described in section 408(d)(3)(A)(i);
(2) An amount in a traditional IRA is
transferred in a trustee-to-trustee transfer
from the trustee of the traditional IRA to
the trustee of the Roth IRA; or
(3) An amount in a traditional IRA is
transferred to a Roth IRA maintained by
the same trustee. For purposes of sections
408 and 408A, redesignating a traditional
IRA as a Roth IRA is treated as a transfer
of the entire account balance from a traditional IRA to a Roth IRA.
(c) Any converted amount is treated as
a distribution from the traditional IRA and
a qualified rollover contribution to the
Roth IRA for purposes of section 408 and
section 408A, even if the conversion is
accomplished by means of a trustee-totrustee transfer or a transfer between
IRAs of the same trustee.
(d) A transaction that is treated as a
failed conversion under §1.408A–5
A–9(a)(1) is not a conversion.
Q-2. What are the modified AGI limitation and joint filing requirements for
conversions?
A-2. (a) An individual with modified
AGI in excess of $100,000 for a taxable
year is not permitted to convert an amount
to a Roth IRA during that taxable year.
This $100,000 limitation applies to the
taxable year that the funds are paid from
the traditional IRA, rather than the year
they are contributed to the Roth IRA.
(b) If the individual is married, he or
she is permitted to convert an amount to a
Roth IRA during a taxable year only if the
individual and the individual’s spouse file
a joint return for the taxable year that the

10

funds are paid from the traditional IRA.
In this case, the modified AGI subject to
the $100,000 limit is the modified AGI
derived from the joint return using the
couple’s combined income. The only exception to this joint filing requirement is
for an individual who has lived apart from
his or her spouse for the entire taxable
year. If the married individual has lived
apart from his or her spouse for the entire
taxable year, then such individual can
treat himself or herself as not married for
purposes of this paragraph, file a separate
return and be subject to the $100,000
limit on his or her separate modified AGI.
In all other cases, a married individual filing a separate return is not permitted to
convert an amount to a Roth IRA, regardless of the individual’s modified AGI.
Q-3. Is a remedy available to an individual who makes a failed conversion?
A-3. (a) Yes. See §1.408A–5 for rules
permitting a failed conversion amount to
be recharacterized as a contribution to a
traditional IRA. If the requirements in
§1.408A–5 are satisfied, the failed conversion amount will be treated as having
been contributed to the traditional IRA
and not to the Roth IRA.
(b) If the contribution is not recharacterized in accordance with §1.408A–5,
the contribution will be treated as a regular contribution to the Roth IRA and, thus,
an excess contribution subject to the excise tax under section 4973 to the extent
that it exceeds the individual’s regular
contribution limit. This is the result regardless of which of the three methods
described in A-1(b) of this section applies
to this transaction. Additionally, the distribution from the traditional IRA will not
be eligible for the 4-year spread and will
be subject to the additional tax under section 72(t) (unless an exception under that
section applies).
Q-4. Do any special rules apply to a
conversion of an amount in an individual’s SEP IRA or SIMPLE IRA to a Roth
IRA?
A-4. (a) An amount in an individual’s
SEP IRA can be converted to a Roth IRA
on the same terms as an amount in any
other traditional IRA.
(b) An amount in an individual’s SIMPLE IRA can be converted to a Roth IRA
on the same terms as a conversion from a
traditional IRA, except that an amount

1999–8 I.R.B.

distributed from a SIMPLE IRA during
the 2-year period described in section
72(t)(6), which begins on the date that the
individual first participated in any SIMPLE IRA Plan maintained by the individual’s employer, cannot be converted to a
Roth IRA. Pursuant to section 408(d)(3)(G), a distribution of an amount from
an individual’s SIMPLE IRA during this
2-year period is not eligible to be rolled
over into an IRA that is not a SIMPLE
IRA and thus cannot be a qualified
rollover contribution. This 2-year period
of section 408(d)(3)(G) applies separately
to the contributions of each of an individual’s employers maintaining a SIMPLE
IRA Plan.
(c) Once an amount in a SEP IRA or
SIMPLE IRA has been converted to a
Roth IRA, it is treated as a contribution to
a Roth IRA for all purposes. Future contributions under the SEP or under the
SIMPLE IRA Plan may not be made to
the Roth IRA.
Q-5. Can amounts in other kinds of retirement plans be converted to a Roth
IRA?
A-5. No. Only amounts in another
IRA can be converted to a Roth IRA. For
example, amounts in a qualified plan or
annuity plan described in section 401(a)
or 403(a) cannot be converted directly to
a Roth IRA. Also, amounts held in an annuity contract or account described in section 403(b) cannot be converted directly
to a Roth IRA.
Q-6. Can an individual who has attained at least age 701⁄2 by the end of a calendar year convert an amount distributed
from a traditional IRA during that year to
a Roth IRA before receiving his or her required minimum distribution with respect
to the traditional IRA for the year of the
conversion?
A-6. (a) No. In order to be eligible for
a conversion, an amount first must be eligible to be rolled over. Section 408(d)(3)
prohibits the rollover of a required minimum distribution. If a minimum distribution is required for a year with respect to
an IRA, the first dollars distributed during that year are treated as consisting of
the required minimum distribution until
an amount equal to the required minimum distribution for that year has been
distributed.
(b) As provided in A-1(c) of this section, any amount converted is treated as a

1999–8 I.R.B.

distribution from a traditional IRA and a
rollover contribution to a Roth IRA and
not as a trustee-to-trustee transfer for purposes of section 408 and section 408A.
Thus, in a year for which a minimum distribution is required (including the calendar year in which the individual attains
age 701⁄2), an individual may not convert
the assets of an IRA (or any portion of
those assets) to a Roth IRA to the extent
that the required minimum distribution
for the traditional IRA for the year has not
been distributed.
(c) If a required minimum distribution
is contributed to a Roth IRA, it is treated
as having been distributed, subject to the
normal rules under section 408(d)(1) and
(2), and then contributed as a regular contribution to a Roth IRA. The amount of
the required minimum distribution is not a
conversion contribution.
Q-7. What are the tax consequences
when an amount is converted to a Roth
IRA?
A-7. (a) Any amount that is converted
to a Roth IRA is includible in gross income as a distribution according to the
rules of section 408(d)(1) and (2) for the
taxable year in which the amount is distributed or transferred from the traditional
IRA. Thus, any portion of the distribution
or transfer that is treated as a return of
basis under section 408(d)(1) and (2) is
not includible in gross income as a result
of the conversion.
(b) The 10-percent additional tax under
section 72(t) generally does not apply to
the taxable conversion amount. But see
§1.408A–6 A-5 for circumstances under
which the taxable conversion amount
would be subject to the additional tax
under section 72(t).
(c) Pursuant to section 408A(e), a conversion is not treated as a rollover for purposes of the one-rollover-per-year rule of
section 408(d)(3)(B).
Q-8. Is there an exception to the income-inclusion rule described in A-7 of
this section for 1998 conversions?
A-8. Yes. In the case of a distribution
(including a trustee-to-trustee transfer)
from a traditional IRA on or before December 31, 1998, that is converted to a
Roth IRA, instead of having the entire
taxable conversion amount includible in
income in 1998, an individual includes in
gross income for 1998 only one quarter of
that amount and one quarter of that

11

amount for each of the next 3 years. This
4-year spread also applies if the conversion amount was distributed in 1998 and
contributed to the Roth IRA within the
60-day period described in section
408(d)(3)(A)(i), but after December 31,
1998. However, see §1.408A–6 A-6 for
special rules requiring acceleration of inclusion if an amount subject to the 4-year
spread is distributed from the Roth IRA
before 2001.
Q-9. Is the taxable conversion amount
included in income for all purposes?
A-9. Except as provided below, any
taxable conversion amount includible in
gross income for a year as a result of the
conversion (regardless of whether the individual is using a 4-year spread) is included in income for all purposes. Thus,
for example, it is counted for purposes of
determining the taxable portion of social
security payments under section 86 and
for purposes of determining the phase-out
of the $25,000 exemption under section
469(i) relating to the disallowance of passive activity losses from rental real estate
activities. However, as provided in
§1.408A–3 A-5, the taxable conversion
amount (and any resulting change in other
elements of adjusted gross income) is disregarded for purposes of determining
modified AGI for section 408A.
Q-10. Can an individual who makes a
1998 conversion elect not to have the 4year spread apply and instead have the
full taxable conversion amount includible
in gross income for 1998?
A-10. Yes. Instead of having the taxable conversion amount for a 1998 conversion included over 4 years as provided
under
A-8 of this section, an individual can
elect to include the full taxable conversion amount in income for 1998. The
election is made on Form 8606 and cannot be made or changed after the due date
(including extensions) for filing the 1998
Federal income tax return.
Q-11. What happens when an individual who is using the 4-year spread dies,
files separately, or divorces before the full
taxable conversion amount has been included in gross income?
A-11. (a) If an individual who is using
the 4-year spread described in A-8 of this
section dies before the full taxable conversion amount has been included in
gross income, then the remainder must be

February 22, 1999

included in the individual’s gross income
for the taxable year that includes the date
of death.
(b) However, if the sole beneficiary of
all the decedent’s Roth IRAs is the decedent’s spouse, then the spouse can elect to
continue the 4-year spread. Thus, the
spouse can elect to include in gross income
the same amount that the decedent would
have included in each of the remaining
years of the 4-year period. Where the
spouse makes such an election, the amount
includible under the 4-year spread for the
taxable year that includes the date of the
decedent’s death remains includible in the
decedent’s gross income and is reported on
the decedent’s final Federal income tax return. The election is made on either Form
8606 or Form 1040, in accordance with the
instructions to the applicable form, for the
taxable year that includes the decedent’s
date of death and cannot be changed after
the due date (including extensions) for filing the Federal income tax return for the
spouse’s taxable year that includes the
decedent’s date of death.
(c) If a Roth IRA owner who is using
the 4-year spread and who was married in
1998 subsequently files separately or divorces before the full taxable conversion
amount has been included in gross income, the remainder of the taxable conversion amount must be included in the
Roth IRA owner’s gross income over the
remaining years in the 4-year period (unless accelerated because of distribution or
death).
Q-12. Can an individual convert a traditional IRA to a Roth IRA if he or she is
receiving substantially equal periodic
payments within the meaning of section
72(t)(2)(A)(iv) from that traditional IRA?
A-12. Yes. Not only is the conversion
amount itself not subject to the early distribution tax under section 72(t), but the
conversion amount is also not treated as a
distribution for purposes of determining
whether a modification within the meaning of section 72(t)(4)(A) has occurred.
Distributions from the Roth IRA that are
part of the original series of substantially
equal periodic payments will be nonqualified distributions from the Roth IRA until
they meet the requirements for being a
qualified distribution, described in
§1.408A–6 A-1(b). The additional 10percent tax under section 72(t) will not

February 22, 1999

apply to the extent that these nonqualified
distributions are part of a series of substantially equal periodic payments. Nevertheless, to the extent that such distributions are allocable to a 1998 conversion
contribution with respect to which the 4year spread for the resultant income inclusion applies (see A-8 of this section) and
are received during 1998, 1999, or 2000,
the special acceleration rules of
§1.408A–6 A-6 apply. However, if the
original series of substantially equal periodic payments does not continue to be
distributed in substantially equal periodic
payments from the Roth IRA after the
conversion, the series of payments will
have been modified and, if this modification occurs within 5 years of the first payment or prior to the individual becoming
disabled or attaining age 591⁄2, the taxpayer will be subject to the recapture tax
of section 72(t)(4)(A).
Q-13. Can a 1997 distribution from a
traditional IRA be converted to a Roth
IRA in 1998?
A-13. No. An amount distributed from
a traditional IRA in 1997 that is contributed to a Roth IRA in 1998 would not
be a conversion contribution. See A-3 of
this section regarding the remedy for a
failed conversion.
§1.408A–5 Recharacterized
contributions.
This section sets forth the following
questions and answers that provide rules
regarding recharacterizing IRA contributions:
Q-1. Can an IRA owner recharacterize
certain contributions (i.e., treat a contribution made to one type of IRA as made
to a different type of IRA) for a taxable
year?
A-1. (a) Yes. In accordance with section 408A(d)(6), except as otherwise provided in this section, if an individual
makes a contribution to an IRA (the
FIRST IRA) for a taxable year and then
transfers the contribution (or a portion of
the contribution) in a trustee-to-trustee
transfer from the trustee of the FIRST
IRA to the trustee of another IRA (the
SECOND IRA), the individual can elect
to treat the contribution as having been
made to the SECOND IRA, instead of to
the FIRST IRA, for Federal tax purposes.
A transfer between the FIRST IRA and

12

the SECOND IRA will not fail to be a
trustee-to-trustee transfer merely because
both IRAs are maintained by the same
trustee. For purposes of section
408A(d)(6), redesignating the FIRST IRA
as the SECOND IRA will be treated as a
transfer of the entire account balance
from the FIRST IRA to the SECOND
IRA.
(b) This recharacterization election can
be made only if the trustee-to-trustee
transfer from the FIRST IRA to the SECOND IRA is made on or before the due
date (including extensions) for filing the
individual’s Federal income tax return for
the taxable year for which the contribution was made to the FIRST IRA. For
purposes of this section, a conversion that
is accomplished through a rollover of a
distribution from a traditional IRA in a
taxable year that, 60 days after the distribution (as described in section 408(d)(3)(A)(i)), is contributed to a Roth IRA in the
next taxable year is treated as a contribution for the earlier taxable year.
Q-2. What is the proper treatment of the
net income attributable to the amount of a
contribution that is being recharacterized?
A-2. (a) The net income attributable to
the amount of a contribution that is being
recharacterized must be transferred to the
SECOND IRA along with the contribution.
(b) If the amount of the contribution
being recharacterized was contributed to a
separate IRA and no distributions or additional contributions have been made from
or to that IRA at any time, then the contribution is recharacterized by the trustee of
the FIRST IRA transferring the entire account balance of the FIRST IRA to the
trustee of the SECOND IRA. In this case,
the net income (or loss) attributable to the
contribution being recharacterized is the
difference between the amount of the
original contribution and the amount
transferred.
(c) If paragraph (b) of this A-2 does not
apply, then the net income attributable to
the amount of a contribution is calculated
in the manner prescribed by §1.408–
4(c)(2)(ii) (disregarding the parenthetical
clause in §1.408–4(c)(2)(iii)).
Q-3. What is the effect of recharacterizing a contribution made to the FIRST
IRA as a contribution made to the SECOND IRA?
A-3. The contribution that is being
recharacterized as a contribution to the

1999–8 I.R.B.

SECOND IRA is treated as having been
originally contributed to the SECOND
IRA on the same date and (in the case of a
regular contribution) for the same taxable
year that the contribution was made to the
FIRST IRA. Thus, for example, no deduction would be allowed for a contribution to the FIRST IRA, and any net income transferred with the recharacterized
contribution is treated as earned in the
SECOND IRA, and not the FIRST IRA.
Q-4. Can an amount contributed to an
IRA in a tax-free transfer be recharacterized under A-1 of this section?
A-4. No. If an amount is contributed
to the FIRST IRA in a tax-free transfer,
the amount cannot be recharacterized as a
contribution to the SECOND IRA under
A-1 of this section. However, if an
amount is erroneously rolled over or
transferred from a traditional IRA to a
SIMPLE IRA, the contribution can subsequently be recharacterized as a contribution to another traditional IRA.
Q-5. Can an amount contributed by an
employer under a SIMPLE IRA Plan or a
SEP be recharacterized under A-1 of this
section?
A-5. No. Employer contributions (including elective deferrals) under a SIMPLE IRA Plan or a SEP cannot be recharacterized as contributions to another IRA
under A-1 of this section. However, an
amount converted from a SEP IRA or
SIMPLE IRA to a Roth IRA may be
recharacterized under A-1 of this section
as a contribution to a SEP IRA or SIMPLE IRA, including the original SEP IRA
or SIMPLE IRA.
Q-6. How does a taxpayer make the
election to recharacterize a contribution to
an IRA for a taxable year?
A-6. (a) An individual makes the election described in this section by notifying,
on or before the date of the transfer, both
the trustee of the FIRST IRA and the
trustee of the SECOND IRA, that the individual has elected to treat the contribution as having been made to the SECOND
IRA, instead of the FIRST IRA, for Federal tax purposes. The notification of the
election must include the following information: the type and amount of the contribution to the FIRST IRA that is to be
recharacterized; the date on which the
contribution was made to the FIRST IRA
and the year for which it was made; a direction to the trustee of the FIRST IRA to

1999–8 I.R.B.

transfer, in a trustee-to-trustee transfer,
the amount of the contribution and net income allocable to the contribution to the
trustee of the SECOND IRA; and the
name of the trustee of the FIRST IRA and
the trustee of the SECOND IRA and any
additional information needed to make
the transfer.
(b) The election and the trustee-totrustee transfer must occur on or before
the due date (including extensions) for filing the individual’s Federal income tax
return for the taxable year for which the
recharacterized contribution was made to
the FIRST IRA, and the election cannot
be revoked after the transfer. An individual who makes this election must report
the recharacterization, and must treat the
contribution as having been made to the
SECOND IRA, instead of the FIRST
IRA, on the individual’s Federal income
tax return for the taxable year described in
the preceding sentence in accordance with
the applicable Federal tax forms and instructions.
(c) The election to recharacterize a contribution described in this A-6 may be
made on behalf of a deceased IRA owner
by his or her executor, administrator, or
other person responsible for filing the
final Federal income tax return of the
decedent under section 6012(b)(1).
Q-7. If an amount is initially contributed to an IRA for a taxable year, then
is moved (with net income attributable to
the contribution) in a tax-free transfer to
another IRA (the FIRST IRA for purposes
of A-1 of this section), can the tax-free
transfer be disregarded, so that the initial
contribution that is transferred from the
FIRST IRA to the SECOND IRA is
treated as a recharacterization of that initial contribution?
A-7. Yes. In applying section
408A(d)(6), tax-free transfers between
IRAs are disregarded. Thus, if a contribution to an IRA for a year is followed by
one or more tax-free transfers between
IRAs prior to the recharacterization, then
for purposes of section 408A(d)(6), the
contribution is treated as if it remained in
the initial IRA. Consequently, an individual may elect to recharacterize an initial
contribution made to the initial IRA that
was involved in a series of tax-free transfers by making a trustee-to-trustee transfer from the last IRA in the series to the
SECOND IRA. In this case the contribu-

13

tion to the SECOND IRA is treated as
made on the same date (and for the same
taxable year) as the date the contribution
being recharacterized was made to the initial IRA.
Q-8. If a contribution is recharacterized, is the recharacterization treated as a
rollover for purposes of the one-rolloverper-year limitation of section 408(d)(3)(B)?
A-8. No, recharacterizing a contribution under A-1 of this section is never
treated as a rollover for purposes of the
one-rollover-per-year limitation of section
408(d)(3)(B), even if the contribution
would have been treated as a rollover contribution by the SECOND IRA if it had
been made directly to the SECOND IRA,
rather than as a result of a recharacterization of a contribution to the FIRST IRA.
Q-9. If an IRA owner converts an
amount from a traditional IRA to a Roth
IRA and then transfers that amount back
to a traditional IRA in a recharacterization, may the IRA owner subsequently reconvert that amount from the traditional
IRA to a Roth IRA?
A-9. (a) (1) Except as otherwise provided in paragraph (b) of this A-9, an IRA
owner who converts an amount from a traditional IRA to a Roth IRA during any taxable year and then transfers that amount
back to a traditional IRA by means of a
recharacterization may not reconvert that
amount from the traditional IRA to a Roth
IRA before the beginning of the taxable
year following the taxable year in which
the amount was converted to a Roth IRA
or, if later, the end of the 30-day period beginning on the day on which the IRA
owner transfers the amount from the Roth
IRA back to a traditional IRA by means of
a recharacterization (regardless of whether
the recharacterization occurs during the
taxable year in which the amount was converted to a Roth IRA or the following taxable year). Thus, any attempted reconversion of an amount prior to the time
permitted under this paragraph (a)(1) is a
failed conversion of that amount. However, see §1.408A–4 A-3 for a remedy
available to an individual who makes a
failed conversion.
(2) For purposes of paragraph (a)(1) of
this A-9, a failed conversion of an amount
resulting from a failure to satisfy the requirements of §1.408A–4 A-1(a) is
treated as a conversion in determining

February 22, 1999

whether an IRA owner has previously
converted that amount.
(b) (1) An IRA owner who converts an
amount from a traditional IRA to a Roth
IRA during taxable year 1998 and then
transfers that amount back to a traditional
IRA by means of a recharacterization may
reconvert that amount once (but no more
than once) on or after November 1, 1998
and on or before December 31, 1998; the
IRA owner may also reconvert that
amount once (but no more than once) during 1999. The rule set forth in the preceding sentence applies without regard to
whether the IRA owner’s initial conversion or recharacterization of the amount
occurred before, on, or after November 1,
1998. An IRA owner who converts an
amount from a traditional IRA to a Roth
IRA during taxable year 1999 that has not
been converted previously and then transfers that amount back to a traditional IRA
by means of a recharacterization may reconvert that amount once (but no more
than once) on or before December 31,
1999. For purposes of this paragraph
(b)(1), a failed conversion of an amount
resulting from a failure to satisfy the requirements of §1.408A–4 A-1(a) is not
treated as a conversion in determining
whether an IRA owner has previously
converted that amount.
(2) A reconversion by an IRA owner
during 1998 or 1999 for which the IRA
owner is not eligible under paragraph
(b)(1) of this A-9 will be deemed an excess reconversion (rather than a failed
conversion) and will not change the IRA
owner’s taxable conversion amount. Instead, the excess reconversion and the last
preceding recharacterization will not be
taken into account for purposes of determining the IRA owner’s taxable conversion amount, and the IRA owner’s taxable
conversion amount will be based on the
last reconversion that was not an excess
reconversion (unless, after the excess reconversion, the amount is transferred
back to a traditional IRA by means of a
recharacterization). An excess reconversion will otherwise be treated as a valid
reconversion.
(3) For purposes of this paragraph (b),
any reconversion that an IRA owner made
before November 1, 1998 will not be
treated as an excess reconversion and will
not be taken into account in determining

February 22, 1999

whether any later reconversion is an excess reconversion.
(c) In determining the portion of any
amount held in a Roth IRA or a traditional
IRA that an IRA owner may not reconvert
under this A-9, any amount previously
converted (or reconverted) is adjusted for
subsequent net income thereon.
Q-10. Are there examples to illustrate
the rules in this section?
A-10. The rules in this section are illustrated by the following examples:
Example 1. In 1998, Individual C converts the
entire amount in his traditional IRA to a Roth IRA.
Individual C thereafter determines that his modified
AGI for 1998 exceeded $100,000 so that he was ineligible to have made a conversion in that year. Accordingly, prior to the due date (plus extensions)
for filing the individual’s Federal income tax return
for 1998, he decides to recharacterize the conversion contribution. He instructs the trustee of the
Roth IRA (FIRST IRA) to transfer in a trustee-totrustee transfer the amount of the contribution, plus
net income, to the trustee of a new traditional IRA
(SECOND IRA). The individual notifies the trustee
of the FIRST IRA and the trustee of the SECOND
IRA that he is recharacterizing his IRA contribution
(and provides the other information described in A6 of this section). On the individual’s Federal income tax return for 1998, he treats the original
amount of the conversion as having been contributed to the SECOND IRA and not the Roth IRA.
As a result, for Federal tax purposes, the contribution is treated as having been made to the SECOND
IRA and not to the Roth IRA. The result would be
the same if the conversion amount had been transferred in a tax-free transfer to another Roth IRA
prior to the recharacterization.
Example 2. In 1998, an individual makes a
$2,000 regular contribution for 1998 to his traditional
IRA (FIRST IRA). Prior to the due date (plus extensions) for filing the individual’s Federal income tax
return for 1998, he decides that he would prefer to
contribute to a Roth IRA instead. The individual instructs the trustee of the FIRST IRA to transfer in a
trustee-to-trustee transfer the amount of the contribution, plus attributable net income, to the trustee of a
Roth IRA (SECOND IRA). The individual notifies
the trustee of the FIRST IRA and the trustee of the
SECOND IRA that he is recharacterizing his $2,000
contribution for 1998 (and provides the other information described in A-6 of this section). On the individual’s Federal income tax return for 1998, he treats
the $2,000 as having been contributed to the Roth
IRA for 1998 and not to the traditional IRA. As a result, for Federal tax purposes, the contribution is
treated as having been made to the Roth IRA for
1998 and not to the traditional IRA. The result
would be the same if the conversion amount had
been transferred in a tax-free transfer to another traditional IRA prior to the recharacterization.
Example 3. The facts are the same as in Example
2, except that the $2,000 regular contribution is initially made to a Roth IRA and the recharacterizing
transfer is made to a traditional IRA. On the indi-

14

vidual’s Federal income tax return for 1998, he
treats the $2,000 as having been contributed to the
traditional IRA for 1998 and not the Roth IRA. As a
result, for Federal tax purposes, the contribution is
treated as having been made to the traditional IRA
for 1998 and not the Roth IRA. The result would be
the same if the contribution had been transferred in a
tax-free transfer to another Roth IRA prior to the
recharacterization, except that the only Roth IRA
trustee the individual must notify is the one actually
making the recharacterization transfer.
Example 4. In 1998, an individual receives a distribution from traditional IRA 1 and contributes the
entire amount to traditional IRA 2 in a rollover contribution described in section 408(d)(3). In this
case, the individual cannot elect to recharacterize the
contribution by transferring the contribution
amount, plus net income, to a Roth IRA, because an
amount contributed to an IRA in a tax-free transfer
cannot be recharacterized. However, the individual
may convert (other than by recharacterization) the
amount in traditional IRA 2 to a Roth IRA at any
time, provided the requirements of §1.408A–4 A-1
are satisfied.

§1.408A-6 Distributions.
This section sets forth the following
questions and answers that provide rules
regarding distributions from Roth IRAs:
Q-1. How are distributions from Roth
IRAs taxed?
A-1. (a) The taxability of a distribution
from a Roth IRA generally depends on
whether or not the distribution is a qualified distribution. This A-1 provides rules
for qualified distributions and certain
other nontaxable distributions. A-4 of
this section provides rules for the taxability of distributions that are not qualified
distributions.
(b) A distribution from a Roth IRA is
not includible in the owner’s gross income if it is a qualified distribution or to
the extent that it is a return of the owner’s
contributions to the Roth IRA (determined in accordance with A-8 of this section). A qualified distribution is one that
is both—
(1) Made after a 5-taxable-year period
(defined in A-2 of this section); and
(2) Made on or after the date on which
the owner attains age 591⁄2, made to a beneficiary or the estate of the owner on or
after the date of the owner’s death, attributable to the owner’s being disabled
within the meaning of section 72(m)(7),
or to which section 72(t)(2)(F) applies
(exception for first-time home purchase).
(c) An amount distributed from a Roth
IRA will not be included in gross income
to the extent it is rolled over to another

1999–8 I.R.B.

Roth IRA on a tax-free basis under the
rules of sections 408(d)(3) and 408A(e).
(d) Contributions that are returned to
the Roth IRA owner in accordance with
section 408(d)(4) (corrective distributions) are not includible in gross income,
but any net income required to be distributed under section 408(d)(4) together
with the contributions is includible in
gross income for the taxable year in
which the contributions were made.
Q-2. When does the 5-taxable-year period described in A-1 of this section (relating to qualified distributions) begin and
end?
A-2. The 5-taxable-year period described in A-1 of this section begins on the
first day of the individual’s taxable year
for which the first regular contribution is
made to any Roth IRA of the individual or,
if earlier, the first day of the individual’s
taxable year in which the first conversion
contribution is made to any Roth IRA of
the individual. The 5-taxable-year period
ends on the last day of the individual’s
fifth consecutive taxable year beginning
with the taxable year described in the preceding sentence. For example, if an individual whose taxable year is the calendar
year makes a first-time regular Roth IRA
contribution any time between January 1,
1998, and April 15, 1999, for 1998, the 5taxable-year period begins on January 1,
1998. Thus, each Roth IRA owner has
only one 5-taxable-year period described
in A-1 of this section for all the Roth IRAs
of which he or she is the owner. Further,
because of the requirement of the 5-taxable-year period, no qualified distributions
can occur before taxable years beginning
in 2003. For purposes of this A-2, the
amount of any contribution distributed as
a corrective distribution under A-1(d) of
this section is treated as if it was never
contributed.
Q-3. If a distribution is made to an individual who is the sole beneficiary of his
or her deceased spouse’s Roth IRA and
the individual is treating the Roth IRA as
his or her own, can the distribution be a
qualified distribution based on being
made to a beneficiary on or after the
owner’s death?
A-3. No. If a distribution is made to
an individual who is the sole beneficiary
of his or her deceased spouse’s Roth IRA
and the individual is treating the Roth
IRA as his or her own, then, in accordance

1999–8 I.R.B.

with §1.408A-2 A-4, the distribution is
treated as coming from the individual’s
own Roth IRA and not the deceased
spouse’s Roth IRA. Therefore, for purposes of determining whether the distribution is a qualified distribution, it is not
treated as made to a beneficiary on or
after the owner’s death.
Q-4. How is a distribution from a Roth
IRA taxed if it is not a qualified distribution?
A-4. A distribution that is not a qualified distribution, and is neither contributed to another Roth IRA in a qualified rollover contribution nor constitutes a
corrective distribution, is includible in the
owner’s gross income to the extent that
the amount of the distribution, when
added to the amount of all prior distributions from the owner ’s Roth IRAs
(whether or not they were qualified distributions) and reduced by the amount of
those prior distributions previously includible in gross income, exceeds the
owner’s contributions to all his or her
Roth IRAs. For purposes of this A-4, any
amount distributed as a corrective distribution is treated as if it was never contributed.
Q-5. Will the additional tax under 72(t)
apply to the amount of a distribution that
is not a qualified distribution?
A-5. (a) The 10-percent additional tax
under section 72(t) will apply (unless the
distribution is excepted under section
72(t)) to any distribution from a Roth IRA
includible in gross income.
(b) The 10-percent additional tax under
section 72(t) also applies to a nonqualified distribution, even if it is not then includible in gross income, to the extent it is
allocable to a conversion contribution, if
the distribution is made within the 5-taxable-year period beginning with the first
day of the individual’s taxable year in
which the conversion contribution was
made. The 5-taxable-year period ends on
the last day of the individual’s fifth consecutive taxable year beginning with the
taxable year described in the preceding
sentence. For purposes of applying the
tax, only the amount of the conversion
contribution includible in gross income as
a result of the conversion is taken into account. The exceptions under section 72(t)
also apply to such a distribution.
(c) The 5-taxable-year period described
in this A-5 for purposes of determining

15

whether section 72(t) applies to a distribution allocable to a conversion contribution
is separately determined for each conversion contribution, and need not be the
same as the 5-taxable-year period used for
purposes of determining whether a distribution is a qualified distribution under A1(b) of this section. For example, if a calendar-year taxpayer who received a
distribution from a traditional IRA on December 31, 1998, makes a conversion
contribution by contributing the distributed amount to a Roth IRA on February
25, 1999 in a qualifying rollover contribution and makes a regular contribution for
1998 on the same date, the 5-taxable-year
period for purposes of this A-5 begins on
January 1, 1999, while the 5-taxable-year
period for purposes of A-1(b) of this section begins on January 1, 1998.
Q-6. Is there a special rule for taxing
distributions allocable to a 1998 conversion?
A-6. Yes. In the case of a distribution
from a Roth IRA in 1998, 1999 or 2000 of
amounts allocable to a 1998 conversion
with respect to which the 4-year spread
for the resultant income inclusion applies
(see §1.408A–4 A-8), any income deferred as a result of the election to years
after the year of the distribution is accelerated so that it is includible in gross income in the year of the distribution up to
the amount of the distribution allocable to
the 1998 conversion (determined under
A-8 of this section). This amount is in addition to the amount otherwise includible
in the owner’s gross income for that taxable year as a result of the conversion.
However, this rule will not require the inclusion of any amount to the extent it exceeds the total amount of income required
to be included over the 4-year period.
The acceleration of income inclusion described in this A-6 applies in the case of a
surviving spouse who elects to continue
the 4-year spread in accordance with
§1.408A–4 A-11(b).
Q-7. Is the 5-taxable-year period described in A-1 of this section redetermined when a Roth IRA owner dies?
A-7. (a) No. The beginning of the 5taxable-year period described in A-1 of
this section is not redetermined when the
Roth IRA owner dies. Thus, in determining the 5-taxable-year period, the period
the Roth IRA is held in the name of a beneficiary, or in the name of a surviving

February 22, 1999

spouse who treats the decedent’s Roth
IRA as his or her own, includes the period
it was held by the decedent.
(b) The 5-taxable-year period for a
Roth IRA held by an individual as a beneficiary of a deceased Roth IRA owner is
determined independently of the 5-taxable-year period for the beneficiary’s own
Roth IRA. However, if a surviving
spouse treats the Roth IRA as his or her
own, the 5-taxable-year period with respect to any of the surviving spouse’s
Roth IRAs (including the one that the surviving spouse treats as his or her own)
ends at the earlier of the end of either the
5-taxable-year period for the decedent or
the 5-taxable-year period applicable to the
spouse’s own Roth IRAs.
Q-8. How is it determined whether an
amount distributed from a Roth IRA is allocated to regular contributions, conversion contributions, or earnings?
A-8. (a) Any amount distributed from
an individual’s Roth IRA is treated as
made in the following order (determined
as of the end of a taxable year and exhausting each category before moving to
the following category)—
(1) From regular contributions;
(2) From conversion contributions, on
a first-in-first-out basis; and
(3) From earnings.
(b) To the extent a distribution is
treated as made from a particular conversion contribution, it is treated as made
first from the portion, if any, that was includible in gross income as a result of the
conversion.
Q-9. Are there special rules for determining the source of distributions under
A-8 of this section?
A-9. Yes. For purposes of determining
the source of distributions, the following
rules apply:
(a) All distributions from all an individual’s Roth IRAs made during a taxable
year are aggregated.
(b) All regular contributions made for
the same taxable year to all the individual’s Roth IRAs are aggregated and added
to the undistributed total regular contributions for prior taxable years. Regular
contributions for a taxable year include
contributions made in the following taxable year that are identified as made for
the taxable year in accordance with
§1.408A–3 A-2. For example, a regular
contribution made in 1999 for 1998 is ag-

February 22, 1999

gregated with the contributions made in
1998 for 1998.
(c) All conversion contributions received during the same taxable year by all
the individual’s Roth IRAs are aggregated. Notwithstanding the preceding
sentence, all conversion contributions
made by an individual during 1999 that
were distributed from a traditional IRA in
1998 and with respect to which the 4-year
spread applies are treated for purposes of
A-8(b) of this section as contributed to the
individual’s Roth IRAs prior to any other
conversion contributions made by the individual during 1999.
(d) A distribution from an individual’s
Roth IRA that is rolled over to another
Roth IRA of the individual in accordance
with section 408A(e) is disregarded for
purposes of determining the amount of
both contributions and distributions.
(e) Any amount distributed as a corrective distribution (including net income),
as described in A-1(d) of this section, is
disregarded in determining the amount of
contributions, earnings, and distributions.
(f) If an individual recharacterizes a
contribution made to a traditional IRA
(FIRST IRA) by transferring the contribution to a Roth IRA (SECOND IRA) in accordance with §1.408A–5, then, pursuant
to §1.408A–5 A-3, the contribution to the
Roth IRA is taken into account for the
same taxable year for which it would have
been taken into account if the contribution
had originally been made to the Roth IRA
and had never been contributed to the traditional IRA. Thus, the contribution to
the Roth IRA is treated as contributed to
the Roth IRA on the same date and for the
same taxable year that the contribution
was made to the traditional IRA.
(g) If an individual recharacterizes a
regular or conversion contribution made
to a Roth IRA (FIRST IRA) by transferring the contribution to a traditional IRA
(SECOND IRA) in accordance with
§1.408A–5, then pursuant to §1.408A–5
A-3, the contribution to the Roth IRA and
the recharacterizing transfer are disregarded in determining the amount of both
contributions and distributions for the taxable year with respect to which the original contribution was made to the Roth
IRA.
(h) Pursuant to §1.408A–5 A-3, the effect of income or loss (determined in accordance with §1.408A–5 A-2) occurring

16

after the contribution to the FIRST IRA is
disregarded in determining the amounts
described in paragraphs (f) and (g) of this
A-9. Thus, for purposes of paragraphs (f)
and (g), the amount of the contribution is
determined based on the original contribution.
Q-10. Are there examples to illustrate
the ordering rules described in A-8 and A9 of this section?
A-10. Yes. The following examples illustrate these ordering rules:
Example 1. In 1998, individual B converts
$80,000 in his traditional IRA to a Roth IRA. B has
a basis of $20,000 in the conversion amount and so
must include the remaining $60,000 in gross income. He decides to spread the $60,000 income by
including $15,000 in each of the 4 years 1998-2001,
under the rules of §1.408A–4 A-8. B also makes a
regular contribution of $2,000 in 1998. If a distribution of $2,000 is made to B anytime in 1998, it will
be treated as made entirely from the regular contributions, so there will be no Federal income tax consequences as a result of the distribution.
Example 2. The facts are the same as in Example
1, except that the distribution made in 1998 is
$5,000. The distribution is treated as made from
$2,000 of regular contributions and $3,000 of conversion contributions that were includible in gross
income. As a result, B must include $18,000 in
gross income for 1998: $3,000 as a result of the acceleration of amounts that otherwise would have
been included in later years under the 4-year-spread
rule and $15,000 includible under the regular 4year-spread rule. In addition, because the $3,000 is
allocable to a conversion made within the previous 5
taxable years, the 10-percent additional tax under
section 72(t) would apply to this $3,000 distribution
for 1998, unless an exception applies. Under the 4year-spread rule, B would now include in gross income $15,000 for 1999 and 2000, but only $12,000
for 2001, because of the accelerated inclusion of the
$3,000 distribution.
Example 3. The facts are the same as in Example
1, except that B makes an additional $2,000 regular
contribution in 1999 and he does not take a distribution in 1998. In 1999, the entire balance in the account, $90,000 ($84,000 of contributions and $6,000
of earnings), is distributed to B. The distribution is
treated as made from $4,000 of regular contributions, $60,000 of conversion contributions that were
includible in gross income, $20,000 of conversion
contributions that were not includible in gross income, and $6,000 of earnings. Because a distribution has been made within the 4-year-spread period,
B must accelerate the income inclusion under the 4year-spread rule and must include in gross income
the $45,000 remaining under the 4-year-spread rule
in addition to the $6,000 of earnings. Because
$60,000 of the distribution is allocable to a conversion made within the previous 5 taxable years, it is
subject to the 10-percent additional tax under section 72(t) as if it were includible in gross income for
1999, unless an exception applies. The $6,000 allocable to earnings would be subject to the tax under
section 72(t), unless an exception applies. Under the

1999–8 I.R.B.

4-year-spread rule, no amount would be includible
in gross income for 2000 or 2001 because the entire
amount of the conversion that was includible in
gross income has already been included.
Example 4. The facts are the same as in Example
1, except that B also makes a $2,000 regular contribution in each year 1999 through 2002 and he does
not take a distribution in 1998. A distribution of
$85,000 is made to B in 2002. The distribution is
treated as made from the $10,000 of regular contributions (the total regular contributions made in the
years 1998-2002), $60,000 of conversion contributions that were includible in gross income, and
$15,000 of conversion contributions that were not
includible in gross income. As a result, no amount
of the distribution is includible in gross income;
however, because the distribution is allocable to a
conversion made within the previous 5 years, the
$60,000 is subject to the 10-percent additional tax
under section 72(t) as if it were includible in gross
income for 2002, unless an exception applies.
Example 5. The facts are the same as in Example
4, except no distribution occurs in 2002. In 2003,
the entire balance in the account, $170,000 ($90,000
of contributions and $80,000 of earnings), is distributed to B. The distribution is treated as made from
$10,000 of regular contributions, $60,000 of conversion contributions that were includible in gross income, $20,000 of conversion contributions that were
not includible in gross income, and $80,000 of earnings. As a result, for 2003, B must include in gross
income the $80,000 allocable to earnings, unless the
distribution is a qualified distribution; and if it is not
a qualified distribution, the $80,000 would be subject to the 10-percent additional tax under section
72(t), unless an exception applies.
Example 6. Individual C converts $20,000 to a
Roth IRA in 1998 and $15,000 (in which amount C
had a basis of $2,000) to another Roth IRA in 1999.
No other contributions are made. In 2003, a $30,000
distribution, that is not a qualified distribution, is
made to C. The distribution is treated as made from
$20,000 of the 1998 conversion contribution and
$10,000 of the 1999 conversion contribution that
was includible in gross income. As a result, for
2003, no amount is includible in gross income; however, because $10,000 is allocable to a conversion
contribution made within the previous 5 taxable
years, that amount is subject to the 10-percent additional tax under section 72(t) as if the amount were
includible in gross income for 2003, unless an exception applies. The result would be the same
whichever of C’s Roth IRAs made the distribution.
Example 7. The facts are the same as in Example
6, except that the distribution is a qualified distribution. The result is the same as in Example 6, except
that no amount would be subject to the 10-percent
additional tax under section 72(t), because, to be a
qualified distribution, the distribution must be made
on or after the date on which the owner attains age
591⁄2, made to a beneficiary or the estate of the owner
on or after the date of the owner’s death, attributable
to the owner’s being disabled within the meaning of
section 72(m)(7), or to which section 72(t)(2)(F) applies (exception for a first-time home purchase).
Under section 72(t)(2), each of these conditions is
also an exception to the tax under section 72(t).
Example 8. Individual D makes a $2,000 regular
contribution to a traditional IRA on January 1, 1999,
for 1998. On April 15, 1999, when the $2,000 has

1999–8 I.R.B.

increased to $2,500, D recharacterizes the contribution by transferring the $2,500 to a Roth IRA (pursuant to §1.408A–5 A-1). In this case, D’s regular
contribution to the Roth IRA for 1998 is $2,000.
The $500 of earnings is not treated as a contribution
to the Roth IRA. The results would be the same if
the $2,000 had decreased to $1,500 prior to the
recharacterization.
Example 9. In December 1998, individual E receives a distribution from his traditional IRA of
$300,000 and in January 1999 he contributes the
$300,000 to a Roth IRA as a conversion contribution. In April 1999, when the $300,000 has increased to $350,000, E recharacterizes the conversion contribution by transferring the $350,000 to a
traditional IRA. In this case, E’s conversion contribution for 1998 is $0, because the $300,000 conversion contribution and the earnings of $50,000 are
disregarded. The results would be the same if the
$300,000 had decreased to $250,000 prior to the
recharacterization. Further, since the conversion is
disregarded, the $300,000 is not includible in gross
income in 1998.

Q-11. If the owner of a Roth IRA dies
prior to the end of the 5-taxable-year period described in A-1 of this section (relating to qualified distributions) or prior
to the end of the 5-taxable-year period described in A-5 of this section (relating to
conversions), how are different types of
contributions in the Roth IRA allocated to
multiple beneficiaries?
A-11. Each type of contribution is allocated to each beneficiary on a pro-rata
basis. Thus, for example, if a Roth IRA
owner dies in 1999, when the Roth IRA
contains a regular contribution of $2,000,
a conversion contribution of $6,000 and
earnings of $1,000, and the owner leaves
his Roth IRA equally to four children,
each child will receive one quarter of each
type of contribution. Pursuant to the ordering rules in A-8 of this section, an immediate distribution of $2,000 to one of
the children will be deemed to consist of
$500 of regular contributions and $1,500
of conversion contributions. A beneficiary’s inherited Roth IRA may not be aggregated with any other Roth IRA maintained by such beneficiary (except for
other Roth IRAs the beneficiary inherited
from the same decedent), unless the beneficiary, as the spouse of the decedent and
sole beneficiary of the Roth IRA, elects to
treat the Roth IRA as his or her own (see
A-7 and A-14 of this section).
Q-12. How do the withholding rules
under section 3405 apply to Roth IRAs?
A-12. Distributions from a Roth IRA
are distributions from an individual retirement plan for purposes of section 3405

17

and thus are designated distributions unless one of the exceptions in section
3405(e)(1) applies. Pursuant to section
3405(a) and (b), nonperiodic distributions
from a Roth IRA are subject to 10-percent
withholding by the payor and periodic
payments are subject to withholding as if
the payments were wages. However, an
individual can elect to have no amount
withheld in accordance with section
3405(a)(2) and (b)(2).
Q-13. Do the withholding rules under
section 3405 apply to conversions?
A-13. Yes. A conversion by any
method described in §1.408A–4 A-1 is
considered a designated distribution subject to section 3405. However, a conversion occurring in 1998 by means of a
trustee-to-trustee transfer of an amount
from a traditional IRA to a Roth IRA established with the same or a different
trustee is not required to be treated as a
designated distribution for purposes of
section 3405. Consequently, no withholding is required with respect to such a conversion (without regard to whether or not
the individual elected to have no withholding).
Q-14. What minimum distribution
rules apply to a Roth IRA?
A-14. (a) No minimum distributions
are required to be made from a Roth IRA
under section 408(a)(6) and (b)(3) (which
generally incorporate the provisions of
section 401(a)(9)) while the owner is
alive. The post-death minimum distribution rules under section 401(a)(9)(B) that
apply to traditional IRAs, with the exception of the at-least-as-rapidly rule described in section 401(a)(9)(B)(i), also
apply to Roth IRAs.
(b) The minimum distribution rules
apply to the Roth IRA as though the Roth
IRA owner died before his or her required
beginning date. Thus, generally, the entire interest in the Roth IRA must be distributed by the end of the fifth calendar
year after the year of the owner’s death
unless the interest is payable to a designated beneficiary over a period not
greater than that beneficiary’s life expectancy and distribution commences before the end of the calendar year following the year of death. If the sole
beneficiary is the decedent’s spouse, such
spouse may delay distributions until the
decedent would have attained age 701⁄2 or
may treat the Roth IRA as his or her own.

February 22, 1999

(c) Distributions to a beneficiary that
are not qualified distributions will be includible in the beneficiary’s gross income
according to the rules in A-4 of this section.
Q-15. Does section 401(a)(9) apply
separately to Roth IRAs and individual
retirement plans that are not Roth IRAs?
A-15. Yes. An individual required to
receive minimum distributions from his
or her own traditional or SIMPLE IRA
cannot choose to take the amount of the
minimum distributions from any Roth
IRA. Similarly, an individual required to
receive minimum distributions from a
Roth IRA cannot choose to take the
amount of the minimum distributions
from a traditional or SIMPLE IRA. In addition, an individual required to receive
minimum distributions as a beneficiary
under a Roth IRA can only satisfy the
minimum distributions for one Roth IRA
by distributing from another Roth IRA if
the Roth IRAs were inherited from the
same decedent.
Q-16. How is the basis of property distributed from a Roth IRA determined for
purposes of a subsequent disposition?
A-16. The basis of property distributed
from a Roth IRA is its fair market value
(FMV) on the date of distribution,
whether or not the distribution is a qualified distribution. Thus, for example, if a
distribution consists of a share of stock in
XYZ Corp. with an FMV of $40.00 on the
date of distribution, for purposes of determining gain or loss on the subsequent sale
of the share of XYZ Corp. stock, it has a
basis of $40.00.
Q-17. What is the effect of distributing
an amount from a Roth IRA and contributing it to another type of retirement
plan other than a Roth IRA?
A-17. Any amount distributed from a
Roth IRA and contributed to another type
of retirement plan (other than a Roth IRA)
is treated as a distribution from the Roth
IRA that is neither a rollover contribution
for purposes of section 408(d)(3) nor a
qualified rollover contribution within the
meaning of section 408A(e) to the other
type of retirement plan. This treatment
also applies to any amount transferred
from a Roth IRA to any other type of retirement plan unless the transfer is a
recharacterization described in §1.408A-5.
Q-18. Can an amount be transferred
directly from an education IRA to a Roth

February 22, 1999

IRA (or distributed from an education
IRA and rolled over to a Roth IRA)?
A-18. No amount may be transferred
directly from an education IRA to a Roth
IRA. A transfer of funds (or distribution
and rollover) from an education IRA to a
Roth IRA constitutes a distribution from
the education IRA and a regular contribution to the Roth IRA (rather than a qualified rollover contribution to the Roth
IRA).
Q-19. What are the Federal income tax
consequences of a Roth IRA owner transferring his or her Roth IRA to another individual by gift?
A-19. A Roth IRA owner’s transfer of
his or her Roth IRA to another individual
by gift constitutes an assignment of the
owner’s rights under the Roth IRA. At
the time of the gift, the assets of the Roth
IRA are deemed to be distributed to the
owner and, accordingly, are treated as no
longer held in a Roth IRA. In the case of
any such gift of a Roth IRA made prior to
October 1, 1998, if the entire interest in
the Roth IRA is reconveyed to the Roth
IRA owner prior to January 1, 1999, the
Internal Revenue Service will treat the
gift and reconveyance as never having occurred for estate tax, gift tax, and generation-skipping tax purposes and for purposes of this A-19.
§1.408A–7 Reporting.
This section sets forth the following
questions and answers that relate to the
reporting requirements applicable to Roth
IRAs:
Q-1. What reporting requirements
apply to Roth IRAs?
A-1. Generally, the reporting requirements applicable to IRAs other than Roth
IRAs also apply to Roth IRAs, except
that, pursuant to section 408A(d)(3)(D),
the trustee of a Roth IRA must include on
Forms 1099-R and 5498 additional information as described in the instructions
thereto. Any conversion of amounts from
an IRA other than a Roth IRA to a Roth
IRA is treated as a distribution for which a
Form 1099-R must be filed by the trustee
maintaining the non-Roth IRA. In addition, the owner of such IRAs must report
the conversion by completing Form 8606.
In the case of a recharacterization described in §1.408A–5 A-1, IRA owners
must report such transactions in the man-

18

ner prescribed in the instructions to the
applicable Federal tax forms.
Q-2. Can a trustee rely on reasonable
representations of a Roth IRA contributor
or distributee for purposes of fulfilling reporting obligations?
A-2. A trustee maintaining a Roth IRA
is permitted to rely on reasonable representations of a Roth IRA contributor or
distributee for purposes of fulfilling reporting obligations.
§1.408A–8 Definitions.
This section sets forth the following
question and answer that provides definitions of terms used in the provisions of
§§1.408A–1 through 1.408A–7 and this
section:
Q-1. Are there any special definitions
that govern in applying the provisions of
§§1.408A–1 through 1.408A–7 and this
section?
A-1. Yes, the following definitions
govern in applying the provisions of
§§1.408A–1 through 1.408A–7 and this
section. Unless the context indicates otherwise, the use of a particular term excludes the use of the other terms.
(a) Different types of IRAs—(1) IRA.
Sections 408(a) and (b), respectively, describe an individual retirement account
and an individual retirement annuity. The
term IRA means an IRA described in either section 408(a) or (b), including each
IRA described in paragraphs (a)(2)
through (5) of this A-1. However, the
term IRA does not include an education
IRA described in section 530.
(2) Traditional IRA. The term traditional IRA means an individual retirement
account or individual retirement annuity
described in section 408(a) or (b), respectively. This term includes a SEP IRA but
does not include a SIMPLE IRA or a Roth
IRA.
(3) SEP IRA. Section 408(k) describes
a simplified employee pension (SEP) as
an employer-sponsored plan under which
an employer can make contributions to
IRAs established for its employees. The
term SEP IRA means an IRA that receives
contributions made under a SEP. The
term SEP includes a salary reduction SEP
(SARSEP) described in section 408(k)(6).
(4) SIMPLE IRA. Section 408(p) describes a SIMPLE IRA Plan as an employer-sponsored plan under which an

1999–8 I.R.B.

employer can make contributions to SIMPLE IRAs established for its employees.
The term SIMPLE IRA means an IRA to
which the only contributions that can be
made are contributions under a SIMPLE
IRA Plan or rollovers or transfers from
another SIMPLE IRA.
(5) Roth IRA. The term Roth IRA
means an IRA that meets the requirements
of section 408A.
(b) Other defined terms or phrases—
(1) 4-year spread. The term 4-year
spread is described in §1.408A–4 A-8.
(2) Conversion. The term conversion
means a transaction satisfying the requirements of §1.408A–4 A-1.
(3) Conversion amount or conversion
contribution. The term conversion
amount or conversion contribution is the
amount of a distribution and contribution
with respect to which a conversion described in §1.408A–4 A-1 is made.
(4) Failed conversion. The term failed
conversion means a transaction in which
an individual contributes to a Roth IRA an
amount transferred or distributed from a
traditional IRA or SIMPLE IRA (including a transfer by redesignation) in a transaction that does not constitute a conversion under §1.408A-4 A-1.
(5) Modified AGI. The term modified
AGI is defined in §1.408A–3 A-5.
(6) Recharacterization. The term
recharacterization means a transaction described in §1.408A–5 A-1.
(7) Recharacterized amount or recharacterized contribution. The term recharacterized amount or recharacterized contribution means an amount or contribution
treated as contributed to an IRA other
than the one to which it was originally
contributed pursuant to a recharacterization described in §1.408A–5 A-1.
(8) Taxable conversion amount. The
term taxable conversion amount means
the portion of a conversion amount includible in income on account of a conversion, determined under the rules of
section 408(d)(1) and (2).
(9) Tax-free transfer. The term tax-free
transfer means a tax-free rollover described in section 402(c), 402(e)(6),
403(a)(4), 403(a)(5), 403(b)(8), 403(b)(10)
or 408(d)(3), or a tax-free trustee-to-trustee
transfer.
(10) Treat an IRA as his or her own.
The phrase treat an IRA as his or her own

1999–8 I.R.B.

means to treat an IRA for which a surviving spouse is the sole beneficiary as his or
her own IRA after the death of the IRA
owner in accordance with the terms of the
IRA instrument or in the manner provided
in the regulations under section 408(a)(6)
or (b)(3).
(11) Trustee. The term trustee includes
a custodian or issuer (in the case of an annuity) of an IRA (except where the context clearly indicates otherwise).
§1.408A–9 Effective date.
This section contains the following
question and answer providing the effective date of §§1.408A–1 through
1.408A–8:
Q-1. To what taxable years do
§§1.408A–1 through 1.408A–8 apply?
A-1 Sections 1.408A–1 through
1.408A-8 apply to taxable years beginning on or after January 1, 1998.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Paragraph 9. The authority citation for
part 602 continues to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par.10. In §602.101, paragraph (c) is
amended by adding an entry in numerical
order to the table to read as follows:
§602.101 OMB control numbers.
* * * * *
(c) * * *
CFR part or section
where identified and
described

Current OMB
control no.

* * * * *
1.408A–2 . . . . . . . . . . . . . . . . 1545–1616
1.408A–4 . . . . . . . . . . . . . . . . 1545–1616
1.408A–5 . . . . . . . . . . . . . . . . 1545–1616
1.408A–7 . . . . . . . . . . . . . . . . 1545–1616
* * * * *
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
Approved January 25, 1999.

19

Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on February 3, 1999, 8:45 a.m., and published in the issue
of the Federal Register for February 4, 1999, 64 F.R.
5597)

Section 4980B.—Failure to
Satisfy Continuous Coverage
Requirements of Group Health
Plans
26 CFR 54.4980B–1: COBRA in general.

T.D. 8812
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 54 and 602
Continuation Coverage
Requirements Applicable to
Group Health Plans
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final rule.
SUMMARY: The Consolidated Omnibus
Budget Reconciliation Act of 1985
(COBRA) added health care continuation
requirements that apply to group health
plans. Coverage required to be provided
under those requirements is referred to as
COBRA continuation coverage. Proposed regulations interpreting the
COBRA continuation coverage requirements were published in the Federal
Register of June 15, 1987 and of January
7, 1998. This document contains final
regulations based on these two sets of
proposed regulations. The final regulations also reflect statutory amendments to
the COBRA continuation coverage requirements since COBRA was enacted. A
new set of proposed regulations
REG–121865–98 addressing additional
issues under the COBRA continuation
coverage provisions is on page 63 of this
Bulletin. The regulations will generally
affect sponsors of and participants in
group health plans, and they provide plan
sponsors and plan administrators with
guidance necessary to comply with the
law.

February 22, 1999

DATES: Effective Date: These regulations are effective February 3, 1999.
Applicability Dates:
Sections
54.4980B–1 through 54.4980B–8 apply
to group health plans with respect to qualifying events occurring in plan years beginning on or after January 1, 2000. See
the Effective Date portion of this preamble and Q&A-2 of §54.4980B–1.
FOR FURTHER INFORMATION CONTACT: Yurlinda Mathis, 202-622-4695.
This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in these final regulations have
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) under control
number 1545-1581. Responses to these
collections of information are mandatory
in some cases and required in order to obtain a benefit in other cases. Group
health plans are required to provide certain individuals a notice of their COBRA
continuation coverage rights when certain qualifying events occur and are required to inform health care providers
who contact the plan to confirm the coverage of certain individuals of the individuals’ complete rights to coverage. To
obtain COBRA continuation coverage or
extended coverage, certain individuals
are required to notify the plan administrator of certain events or that they are electing COBRA continuation coverage, and
plans are required to notify certain individuals of insignificant underpayments if
the plan wishes to require the individuals
to pay the deficiency. This information
will be used to advise employers and plan
administrators of their obligation to offer
COBRA continuation coverage, or an extended period of such coverage; to advise
qualified beneficiaries of their right to
elect COBRA continuation coverage and
of insignificant errors in payment; and to
inform health care providers of individuals’ rights to COBRA continuation
coverage.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-

February 22, 1999

lection of information displays a valid
control number.
The estimated average annual burden
per respondent varies from 30 seconds to
330 hours, depending on individual circumstances, with an estimated average of
14 minutes.
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, OP:FS:FP,
Washington, DC 20224, and to the Office
of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.
Books or records relating to these collections of information must be retained
as long as their contents may 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
On June 15, 1987, proposed regulations
(EE–143–86, 1987–2 C.B. 929) relating
to continuation coverage requirements applicable to group health plans were published in the Federal Register (52 F.R.
22716). A public hearing was held on
November 4, 1987. Written comments
were also received. A supplemental set of
proposed regulations (REG–209485–86,
1998–11 I.R.B. 21) was published in the
Federal Register of January 7, 1998 (63
F.R. 708). No public hearing was requested or held after the publication of the
supplemental proposed regulations; written comments were received. After consideration of these comments, after review of the reported court decisions under
the parallel COBRA continuation coverage provisions of the Employee Retirement Income Security Act of 1974
(ERISA) and the Public Health Service
Act, and based on the experience of the
IRS in administering the COBRA continuation coverage requirements, a portion
of the regulations proposed by EE–143–
86 and REG–209485–86 is adopted as revised by this Treasury decision. The revisions are summarized in the explanation
below. Also being published elsewhere in
this issue of the Federal Register is a

20

new set of proposed regulations, which
addresses additional issues.
Explanation of Provisions
Overview
The regulations are intended to provide
clear, administrable rules regarding
COBRA continuation coverage. The regulations give comprehensive guidance on
many questions under COBRA, with a
view to enhancing the certainty and reliance available to all parties – including
employees, qualified beneficiaries, employers, employee organizations, and
group health plans – in determining their
COBRA rights and obligations. The
guidance is designed to further the protective purposes of COBRA without undue
administrative burdens or costs on employers, employee organizations, or group
health plans.
For example, the regulations:
• Prevent group health plans from terminating COBRA continuation coverage on the basis of other coverage
that a qualified beneficiary had prior
to electing COBRA continuation
coverage, in accordance with the
Supreme Court’s decision in Geissal
v. Moore Medical Corp.
• Give employers and employee organizations significant flexibility in determining, for purposes of COBRA,
the number of group health plans
they maintain. This will reduce burdens on employers and employee organizations by permitting them to
structure their group health plans in
an efficient and cost-effective manner and to satisfy their COBRA
obligations based upon that structure.
• Provide baseline rules for determining the COBRA liabilities of buyers
and sellers of corporate stock and corporate assets and permit buyers and
sellers to reallocate and carry out
those liabilities by agreement. This
will significantly enhance employers’
ability to negotiate and to plan appropriately for the treatment of

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3Ada44199db7c0dafb. Public record. Not legal advice.