Senate Passes Bill on Roth Arrangements in 457 Plans
At the end of the 2007 session the Senate passed a bill that included the governmental Roth 457 provision. The Senate Manager's Amendments (Amendment 3855) to the House Farm bill, H.R. 2419, provides for Roth arrangements in 457 plans.
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.
Differences between the House and Senate bills will have to be resolved in a conference, which is expected to take place early in 2008. The fact that the Roth 457 provision raises revenue for the Federal Treasury greatly increases its prospects for enactment in this or another bill.