Farm Bill Passes Without Roth Arrangements; Now Included in FAA Reauthorization Bill

May 30, 2008

The House and Senate recently passed a final conference agreement on legislation commonly known as the Farm Bill, but the Roth 457 provision was dropped from the bill.

Included in the Farm Bill, is a provision that exempts all retirement savings and education savings accounts from the asset tests that are part of determining eligibility for the food stamp program. Effective Oct. 1, 2008, these accounts will no longer court as assets that can make an individual ineligible for food stamps.

Currently, the Roth 457 provision is being used to pay for provisions included in the reauthorization bill for the Federal Aviation Administration (FAA). However, the FAA bill is stalled. In the meantime, the Roth provision could be picked up for use in another bill.

For local and state government workers, the Roth arrangements provision would level the playing field 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.

Any Roth contribution is taxed as income in the year of the contribution, but investments earnings are distributed tax free if held until retirement. Roth 457 arrangements would fall under the total contribution caps for 457 plans, which is $15,500 in 2008.