SECTION 4. SIMPLIFIED SAFE

HARBOR METHOD FOR PRE–2006 ROTH IRA CONVERSIONS

The Service and Treasury recognize that Forms 1099-R must soon be issued for Roth IRA conversions occurring in 2005. Accordingly, this section 4 provides that, in the case of a Roth IRA conversion where an annuity contract that has not yet been annuitized is distributed or treated as distributed before January 1, 2006, 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 the contract is permitted to be determined using the methodology provided in A–12 of § 1.401(a)(9)–6 except that all front-end loads and other non-recurring charges assessed in the twelve months immediately preceding the conversion must be added to the account value.

DRAFTING INFORMATION

The principal authors of this revenue procedure are Larry Isaacs and Robert Walsh of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue procedure, please contact the Service’s taxpayer assistance telephone service between the hours of 8:30 a.m. and 4:30 p.m. Eastern time, Monday through Friday, by calling 800–829–1040 (a toll-free number). Mr. Isaacs and Mr. Walsh may be reached at (202) 283–9888 (not a toll-free number).

Under A–12 of § 1.401(a)(9)–6, an employee’s entire interest under an annuity contract that has not yet been annuitized (which is used to determine the employee’s required minimum distribution) is the sum of the following: (1) the dollar amount credited to the employee or beneficiary under the contract (which may not be reduced to reflect any surrender charges under the contract) and (2) the actuarial present value of any additional benefits (such as survivor benefits in excess of the account balance, any guaranteed minimum benefits, and any charges that are expected to be refunded, rebated or otherwise reversed at a later date) that will be provided under the contract.

For this purpose, the actuarial present value of any additional benefits is to be determined using reasonable actuarial assumptions, including reasonable assumptions as to future distributions, and without regard to an individual’s health. However, paragraph (c)(1) of A–12 of § 1.401(a)(9)–6 provides that the actuarial present value of the additional benefits may be disregarded if: (1) the sum of the dollar amount credited to the employee or beneficiary under the contract and the actuarial present value of the additional benefits is no more than 120 percent of the dollar amount credited to the employee or beneficiary under the contract and (2) the additional benefits satisfy certain other requirements. Also, paragraph (c)(2) of A–12 of § 1.401(a)(9)–6 provides that the actuarial value of the right to receive a final payment upon death that does not exceed the excess of the premiums paid less the amount of prior distributions may also be disregarded if it is the only additional benefit under the contract. Because some benefits may be disregarded, the method

ology of A–12 of § 1.401(a)(9)–6 does not always reflect the full value of all of the benefits under the contract.