Roth Contributions by Airline Pilots
The Recovery Act of ’08 has a section of the bill (section 125) that seemingly allows a qualified airline pilot to contribute any portion of an airline payment amount to a Roth IRA within 180 days of receipt of such amount. According to the provision, this contribution will be treated as a qualified rollover contribution to the Roth IRA.
A few questions regarding this provision:
1. If the pilot opened a new Roth IRA for these types of contributions, would they still be bound by the 5-year holding period?
2. Assuming that the 5-year holding period must be met, how would non-qualfiied distributions of these assets work? Would they be considered contributions and be able to be removed free of penalty, if not tax?
Any insight would be apprecaited.
Thanks!
Permalink Submitted by Alanna Crawford on Mon, 2009-02-02 20:42
I know this is a difficult one, but do you have any insight?
Thanks!
Permalink Submitted by Alan Spross on Mon, 2009-02-02 21:45
There is no mention of any exceptions to the Roth qualification provisions. Therefore, these are essentially Roth conversions, and would be subject to their own 5 year holding period for each conversion to avoid early distribution. This 5 year holding period effectively ends at age 59.5.
If this were the first Roth IRA of any type, the conversion would also start the 5 year clock for determining when all the taxpayer’s Roths would be qualified, ie. earnings distributed would be tax free.
Sec 125 applies not just to pilots, but all airline employees who were covered by a DB plan.
This section appears to broaden Sec 824 of the PPA (Direct Roth conversions as of 2008), in the areas of providing 180 days rather than 60 days for the rollover, and also the types of payments from the airline that would be included as eligible, notably certain amounts awarded by the BK courts. For this reason, Notice 2008-30 that defines some of the tax characteristics of these rollovers should also apply to the airline rollovers. 2008-30 explains the 5 year holding requirements as above.