SECTION 3. SAFE HARBOR

METHOD FOR ROTH IRA CONVERSIONS

The Service and Treasury recognize that it may be difficult to determine the fair market value of an annuity contract under the temporary regulations. Moreover, the Service and Treasury believe it is appropriate to permit the use of a modified version of the methodology applied under A–12 of § 1.401(a)(9)–6 as a safe harbor method to be used in determining the fair market value of such an annuity contract. Accordingly, this revenue procedure provides that, until further guidance is issued, for purposes of determining the amount includible in gross income as a result of the conversion of a traditional IRA to a Roth IRA as described in A–14 of § 1.408A–4T, the fair market value of an annuity contract that has not yet been annuitized is permitted to be determined using the methodology provided in A–12 of § 1.401(a)(9)–6 with the following modifications:

(1) All front-end loads and other nonrecurring charges assessed in the twelve months immediately preceding the conversion must be added to the account value.

(2) Future distributions are not to be assumed in the determination of the actuarial present value of additional benefits.

(3) The exclusions provided under paragraphs (c)(1) and (c)(2) of A–12 of § 1.401(a)(9)–6 are not to be taken into account.

2006–3 I.R.B. 316 January 17, 2006