Farm Bill Includes Provision for Governmental Roth 457 Plans

A provision that would allow Governmental Roth 457 plans was included in the Senate Farm Bill approved on Dec. 14, 2007 as part of the Manager’s Package of Amendments (Amendment 3855). The House did not move on the Senate version of the farm bill before the holiday recess and the two will have to reconcile the differences in a conference in early 2008.

The provision would level the playing field for state and local government workers by permitting 457(b) plans to offer the designated Roth accounts already permitted in 401(k) and 403(b) plans. Under current law, 401(k) plans and 403(b) plans may allow workers to designate contributions as Roth contributions.

As with a Roth IRA, designated Roth contributions to 401(k) and 403(b) plans are taxed as income in the year of the contribution, but investments earnings are distributed tax free if held until retirement. The Roth 457 proposal would be effective for taxable years after Dec. 31, 2007 and would raise an estimated $1 billion in taxes over ten years.