Retirement Plans FAQs on Designated Roth Accounts
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These frequently asked questions and answers provide general information and should not be cited as any type of legal authority. They provide responses to general inquiries. Because these answers do not apply to every situation, yours may require additional research. We based our answers on the final regulations Designated Roth Contributions to Cash or Deferred Arrangements Under Section 401(k) and Designated Roth Accounts Under Section 402A.
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General Questions on Designated Roth Accounts in Retirement Plans
What is a Roth 401(k) or Roth 403(b)? Is it a new type of plan? No, it is not a new type of plan. Designated Roth contributions are a type of contribution that new or existing 401(k), 403(b) or governmental 457(b) plans can accept. If a plan adopts this feature, employees can designate some or all of their elective contributions (also referred to as elective deferrals) as designated Roth contributions (which are included in gross income), rather than traditional, pre-tax elective contributions. When can I start making designated Roth contributions to a designated Roth account? You may begin making designated Roth contributions to your 401(k), 403(b) or governmental 457(b) plan after your plan sponsor amends your plan to add this feature.
Return to General Designated Roth Accounts FAQs Designated Roth Contributions
What is a designated Roth contribution? A designated Roth contribution is a type of elective deferral that employees can make to their 401(k), 403(b) or governmental 457(b) retirement plan. With a designated Roth contribution, the employee irrevocably designates the deferral as an after-tax contribution that the employer must deposit into a designated Roth account. The employer includes the amount of the designated Roth contribution in the employee’s gross income at the time the employee would have otherwise received the amount in cash if the employee had not made the election. It is subject to all applicable wage-withholding requirements. The law does not allow designated Roth contributions in SARSEP or SIMPLE IRA plans.
Can I make both pre-tax elective and designated Roth contributions in the same year? Yes, you can contribute to both a designated Roth account and a traditional, pre-tax account in the same year in any proportion you choose.
Is there a limit on how much I may contribute to my designated Roth account? Yes, the combined amount contributed to all designated Roth accounts and traditional, pre-tax accounts in any one year for any individual is limited (under Code §402(g)). The limit is $17,000 in 2012 plus an additional $5,500 in catch-up contributions in 2012 if you are age 50 or older at the end of the year. These limits may be increased in later years to reflect cost-of-living adjustments.
Can I make age-50 catch-up contributions as a designated Roth contribution to my designated Roth account?? Yes, provided you are age 50 or older by the end of the year and the plan permits these contributions.
Can I contribute the maximum, including catch-up contributions, to both a designated Roth account and a Roth IRA in the same year? Yes. if you are age 50 or older, you can make a contribution of up to $23,000 in 2013 to your 401(k), 403(b) or governmental 457(b) plan ($17,500 regular and $5,500 catch-up contributions) and $6,500 to a Roth IRA ($5,500 regular and $1,000 catch-up IRA contributions) for a total of $29,500 for 2013.
When must I be able to elect to make designated Roth contributions? You must have an effective opportunity to make (or change) an election to make designated Roth contributions at least once during each plan year. The plan must state the rules governing the frequency of the elections. These rules must apply in the same manner to both pre-tax elective contributions and designated Roth contributions. You must make a valid designated Roth election, under your plan’s rules, before you can place any money in a designated Roth account.
Do the same income restrictions that apply to Roth IRAs apply to designated Roth contributions? No, there are no limits on your income in determining if you can make designated Roth contributions. Of course, you have to have salary from which to make any 401(k), 403(b) or governmental 457(b) deferrals.
Can my employer match my designated Roth contributions? Must my employer allocate the matching contributions to a designated Roth account? Yes, your employer can make matching contributions on your designated Roth contributions. However, your employer can only allocate your designated Roth contributions to your designated Roth account. Your employer must allocate any contributions to match designated Roth contributions into a pre-tax account, just like matching contributions on traditional, pre-tax elective contributions.
Can employers allocate plan forfeitures to designated Roth accounts? Employers can only allocate designated Roth contributions and rollover contributions (and earnings on these contributions) to designated Roth accounts. The employer may not allocate forfeitures, matching or any other employer contributions to any designated Roth accounts.
Can I change my mind and have designated Roth contributions treated as pre-tax elective contributions? No. Once you designate contributions as Roth contributions, you cannot later change them to traditional, pre-tax elective contributions.
Can a plan offer only designated Roth contributions? No, in order to provide for designated Roth contributions, a plan must also offer traditional, pre-tax elective contributions. Can a plan automatically enroll me to make designated Roth contributions if I fail to decline participation? Yes, a plan can provide that your employer will automatically withhold elective deferrals from your pay unless you decline participation,. If the plan has both traditional, pre-tax elective contributions and designated Roth contributions, the plan must state how the employer will allocate your automatic contributions between the pre-tax elective contributions and designated Roth contributions. Can I make a designated Roth contribution for my spouse if my spouse has no earned income, as permitted with a spousal IRA account? No. Although you can contribute to a traditional or Roth IRA for your spouse based on your earned income, you cannot contribute to a Roth 401(k), Roth 403(b) or Roth governmental 457(b) for your spouse.
If my only participation in a retirement plan is through non-deductible designated Roth contributions to a designated Roth account, can I make a deductible IRA contribution regardless of my income, or do the active participant rules apply? You can contribute to a traditional IRA (up to the maximum IRA dollar limits) regardless of whether or not you are an active participant in a plan. However, when determining whether you can deduct a contribution to a traditional IRA, the active participant rules under Code §219 apply. You are an active participant if you make designated Roth contributions to a designated Roth account. As such, your ability to deduct contributions made to a traditional IRA depends on your modified adjusted gross income.
If an employer offers designated Roth contributions to one participant in a 403(b) plan, must the employer offer them to all other participants in the plan? Yes. Under the universal availability requirement of §403(b)(12), if any employee is given the opportunity to designate §403(b) elective deferrals as designated Roth contributions, then all employees must be given that right. Return to Designated Roth Contributions FAQs Designated Roth Accounts
What is a designated Roth account? A designated Roth account is a separate account in a 401(k), 403(b), or governmental 457(b) plan to which an employer allocates an employee’s designated Roth contributions and their gains and losses. The employer must separately account for all contributions, gains and losses to this designated Roth account until this account balance is completely distributed.
Does my employer need to establish a new account under its 401(k), 403(b) or governmental 457(b) plan to receive my designated Roth contributions? Yes, your employer must establish a new separate account for each participant making designated Roth contributions and must keep the designated Roth contributions completely separate from your previous and current traditional, pre-tax elective contributions.
Does "separate account" refer to the actual funding vehicle or does it refer to separate accounting within the plan's trust? Under §402A, the “separate account” requirement can be satisfied by any means by which an employer can separately and accurately track a participant’s designated Roth contributions, along with corresponding gains and losses. Return to Designated Roth Accounts FAQs Distributions from Designated Roth Accounts
What is a qualified distribution from a designated Roth account? A qualified distribution is generally a distribution that is made after a 5-taxable-year period of participation and is either:
If a distribution is made to your alternate payee or beneficiary, then your age, death or disability is used to determine whether the distribution is qualified. The only exception is when the alternate payee or surviving spouse rolls over the distribution to his or her own employer’s designated Roth account, in which case their own age, death or disability is used to determine whether the distribution is qualified. A qualified distribution from a designated Roth account is not included in your gross income.
What is a 5-taxable-year period of participation? How is it calculated? The 5-taxable-year period of participation begins on the first day of your taxable year for which you first made designated Roth contributions to the plan. It ends when five consecutive taxable years have passed. If you make a direct rollover from a designated Roth account under another plan, the 5-taxable-year period for the recipient plan begins on the first day of the taxable year that you made designated Roth contributions to the other plan, if earlier. If you are a reemployed veteran making designated Roth contributions, they are treated as made in the taxable year of qualified military service that you designate as the year to which the contributions relate. Certain contributions do not start the 5-taxable-year period of participation. For example, a year in which the only contributions consist of excess deferrals will not start the 5-taxable-year period of participation. Further, excess contributions that are distributed to prevent an ADP failure also do not begin the 5-taxable-year period of participation.
What types of distributions cannot be qualified distributions and must be included in gross income? You cannot treat the following types of distributions from a designated Roth account as qualified distributions (or eligible rollover distributions) and must include any earnings paid out in gross income:
What happens if I take a distribution from my designated Roth account before the end of the 5-taxable-year period? If you take a distribution from your designated Roth account before the end of the 5-taxable-year period, it is a nonqualified distribution. You must include the earnings portion of the nonqualified distribution in gross income. However, the basis (or contributions) portion of the nonqualified distribution is not included in gross income. The basis portion of the distribution is determined by multiplying the amount of the nonqualified distribution by the ratio of designated Roth contributions to the total designated Roth account balance. For example, if a nonqualified distribution of $5,000 is made from your designated Roth account when the account consists of $9,400 of designated Roth contributions and $600 of earnings, the distribution consists of $4,700 of designated Roth contributions (that are not includible in your gross income) and $300 of earnings (that are includible in your gross income). See Q&As regarding Rollovers of Designated Roth Contributions, for additional rules for rolling over both qualified and nonqualified distributions from designated Roth accounts.
Since I make designated Roth contributions from after-tax income, can I make tax-free withdrawals from my designated Roth account at any time? No, the same restrictions on withdrawals that apply to pre-tax elective contributions also apply to designated Roth contributions. If your plan permits distributions from accounts because of hardship, you may choose to receive a hardship distribution from your designated Roth account. The hardship distribution will consist of a pro-rata share of earnings and basis and the earnings portion will be included in gross income unless you have had the designated Roth account for 5 years and are either disabled or over age 59 ½.
Is a distribution from my designated Roth account for reasons beyond my control (e.g., plan termination or severance from employment) a qualified distribution even though it doesn't meet the criteria for a qualified distribution? No, if you have not held the account for more than 5 years or if the distribution is not made after death, disability, or age 59 ½, then the distribution is not a qualified distribution. However, you could roll the distribution over into a designated Roth account in another plan or into your Roth IRA. A transfer to another designated Roth account must be made through a direct rollover.
Can I take a loan from my designated Roth account? Yes, if the plan permits you can identify from which account(s) in your 401(k), 403(b) or governmental 457(b) plan you wish to draw your loan, including from your designated Roth account. However, any loans from your designated Roth account must be combined with any other outstanding loans from that and any other plan maintained by the employer when determining the maximum amount you are permitted to borrow. To the extent a loan is from a designated Roth account, the required amortized repayment must be satisfied separately with respect to the portion of the loan attributable to the designated Roth account and the portion of the loan from other accounts under the plan. Return to Distributions from Designated Roth Accounts FAQs Rollovers of Designated Roth Contributions
Can I roll over distributions from a designated Roth account to another employer's designated Roth account or into a Roth IRA? Yes. However, because a distribution from a designated Roth account consists of both pre-tax money (earnings on the Roth contributions) and basis (Roth contributions), it must be rolled over into a designated Roth account in another plan through a direct rollover. If the distribution is made directly to you and then rolled over within 60 days, the basis portion cannot be rolled over to another designated Roth account, but can be rolled over into a Roth IRA. If only a portion of the distribution is rolled over, the rolled over portion is treated as consisting first of the amount of the distribution that is includible in gross income. Alternatively, you may roll over the taxable portion of the distribution to a 401(a) or 403 (b) plan’s designated Roth account within 60 days of receipt. However, your period of participation under the distributing plan is not carried over to the recipient plan for purposes of measuring the 5-taxable-year period under the recipient plan.
How is the 5-taxable-year period calculated when I roll over a distribution from a designated Roth account to a Roth IRA? When you roll over a distribution from a designated Roth account to a Roth IRA, the period that the rolled-over funds were in the designated Roth account does not count toward the 5-taxable-year period for determining qualified distributions from the Roth IRA. However, if you had contributed to any Roth IRA in a prior year, the 5-taxable-year period for determining qualified distributions from a Roth IRA is measured from the earlier contribution. So, if the earlier contribution was made more than 5 years ago and you are over 59 ½ a distribution of amounts attributable to a rollover contribution from a designated Roth account would be a qualified distribution from the Roth IRA.
Are there any examples to help explain the rollover rules? Yes, the following examples illustrate the rollover rules.
Return to Rollovers of Designated Roth Contributions FAQs
In-Plan Rollovers
What is an “in-plan Roth rollover”? An in-plan Roth rollover is a distribution from your account, other than an account that holds designated Roth contributions, that you roll over to your designated Roth account in the same plan.
401(k) and 403(b) plans that have designated Roth accounts may offer in-plan Roth rollovers for eligible rollover distributions made after September 27, 2010. 457(b) governmental plans may adopt an amendment to include designated Roth accounts after December 31, 2010, and then offer in-plan Roth rollovers.
Participants, surviving spouse beneficiaries and alternate payees who are current or former spouses are eligible to do an in-plan Roth rollover in a plan offering these rollovers.
How can I do an in-plan Roth rollover? If your plan allows them, you can do an in-plan Roth:
No, you may not recharacterize an in-plan Roth rollover.
You may only roll over an eligible rollover distribution in an in-plan Roth rollover. Generally, an eligible rollover distribution is any distribution from a qualified retirement plan except:
Can I get a distribution while I am still an employee (an in-service distribution) and roll over that distribution as an in-plan Roth rollover? Your plan may allow an in-service distribution of vested amounts in your plan accounts that you may be able to roll over to a designated Roth account in the same plan. Your plan must state the rules for when your may obtain an in-service distribution. However, the rules for when a plan may offer an in-service distribution vary depending upon the type of contributions in your plan accounts.
Plans can be more restrictive than the preceding rules. For example, a plan may restrict in-service distributions of your pre-tax elective deferral contributions until after you have reached the age of 62 instead of 59 ½. You can only rollover in-service distributions that are eligible rollover distributions in an in-plan Roth rollover.
Can a plan add new in-service distributions that are eligible for only in-plan Roth rollovers? Yes. A plan can adopt an amendment to add new in-service distributions from the plan’s non-Roth accounts conditioned on participants rolling over the distribution in an in-plan Roth direct rollover. However, the plan cannot impose this condition on any existing distribution options available under the plan.
Can my outstanding plan loan be part of an in-plan Roth rollover? Yes. An in-plan Roth direct rollover can include your outstanding plan loan if there is no change in the loan’s repayment schedule. Therefore, if the plan allows, you may roll over your outstanding loan balance from the plan’s non-Roth account into the plan’s designated Roth account via a direct rollover. The loan’s taxable amount when rolled over as an in-plan Roth direct rollover would be the balance of the loan at the time of the rollover.
Can I borrow any amount that is part of an in-plan Roth rollover? If your plan allows loans, you can borrow any amount that is in your designated Roth account, including amounts that you rolled over into that account as an in-plan Roth rollover.
Is income tax withholding required on in-plan Roth rollovers? There is no income tax withholding required on an in-plan Roth direct rollover. However, the law treats an in-plan Roth 60-day rollover as any other eligible rollover distribution and is subject to the mandatory 20% federal income tax withholding requirement.
How are in-plan Roth rollovers taxed? You generally include the taxable amount (fair market value minus your basis in the distribution) of an in-plan Roth rollover in your gross income for the tax year in which you receive it. However, special tax rules apply for in-plan Roth rollovers done in 2010. An in-plan Roth direct rollover is not subject to the mandatory 20% withholding. You may have to increase your federal income tax withholding or make estimated tax payments to avoid an underpayment of tax penalty. In-plan Roth rollovers are not subject to the 10% additional tax on early distributions. However, they are subject to a special recapture rule when a plan distributes any part of an in-plan Roth rollover within a 5-taxable-year period, making the distribution subject to the 10% additional tax on early distributions under Code §72(t) unless:
The 5-taxable-year period begins January 1 of the year of the in-plan Roth rollover and ends on the last day of the fifth year of that period. This special recapture rule does not apply when you roll over the distribution to another designated Roth account or to your Roth IRA but does apply to a subsequent distribution from the rolled over account or IRA within the 5-taxable-year period.
No. A distribution rolled over as an in-plan Roth direct rollover is not treated as a distribution requiring your spouse’s consent.
Must my plan provide me notice of the in-plan Roth rollover feature? Yes. A plan offering in-plan Roth rollovers must include a description of it in the written explanation (402(f) Notice) that it gives to participants who receive an eligible rollover distribution. Notice 2010-84 describes how a plan using the safe harbor explanations can revise them if it offers an in-plan Roth rollover option.
Return to In-Plan Rollovers FAQs
2010 In-Plan Rollovers
What is a 2010 in-plan Roth rollover? A 2010 in-plan Roth rollover is an eligible rollover distribution from your non-Roth account, made from September 28, 2010, to December 31, 2010, and rolled over to your designated Roth account in the same plan. You can roll over your non-Roth account eligible rollover distribution either as an in-plan Roth direct rollover or as an in-plan Roth 60-day rollover. Your plan must have a designated Roth account in place at the time you do an in-plan Roth rollover. How is a 2010 in-plan Roth rollover taxed? You generally include the taxable amount (fair market value minus your basis in the distribution) of an in-plan Roth rollover in gross income for the tax year in which you receive the distribution. However, for in-plan Roth rollovers done in 2010, you:
If you elected to include the taxable amount in gross income in 2010, this election applies to all of your in-plan Roth rollovers in 2010 and you may not revoke the election after the due date (including extensions) of your 2010 tax return. An in-plan Roth direct rollover is not subject to the mandatory 20% withholding. You may have to increase your federal income tax withholding or make estimated tax payments to avoid an underpayment of tax penalty. In-plan Roth rollovers are not subject to the 10% additional tax on early distributions. However, they are subject to a special recapture rule when a plan distributes any part of an in-plan Roth rollover within a 5-taxable-year period.
Plans must report 2010 in-plan Roth direct rollovers on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. by:
Plans are not required to withhold 20% for an in-plan Roth direct rollover. The 10% additional tax on early distributions doesn’t apply to any amount of an in-plan Roth rollover.
You must:
If you converted any amount from a non-Roth IRA to a Roth IRA in 2010, complete Part II of the same Form 8606 on which you report your in-plan Roth rollover. You must file and complete a separate Form 8606, Part III, if you rolled over amounts from a qualified retirement plan to a Roth IRA in 2010.
How does my plan determine the amount of a distribution allocable to my in-plan Roth rollover? Notice 2010-84 prescribes an ordering rule and provides an example of a distribution from a participant’s designated Roth account to which the participant had made an in-plan Roth rollover. The example shows how to apply the special income acceleration rules and the special recapture rule. Generally, a distribution from a designated Roth account is treated as coming pro-rata from basis and earnings in the account. If the plan does not have a separate account for in-plan Roth rollovers, the basis portion is treated as coming first from your regular designated Roth contributions and then from an in-plan Roth rollover. If the plan does have a separate account for in-plan Roth rollovers and allows you to request a distribution only from that account and the distribution is made only from that account, then the basis in the distribution you receive is from your in-plan Roth rollover. A distribution attributed to an in-plan Roth rollover is treated as first coming from your oldest in-plan Roth rollover (first-in-first-out basis) and is allocated first to the taxable amount of that rollover.
How does my plan report a 2010 distribution from my in-plan Roth rollover? Plans must report any distributions made in 2010 from designated Roth accounts allocable to an in-plan Roth rollover on a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The plan would report the distribution as any other distribution from a designated Roth account (see Form 1099-R instructions). However, in the blank box to the left of box 10, the plan must enter the amount of the distribution allocable to the in-plan Roth rollover.
How am I taxed if I receive a distribution in 2010 or 2011 of any amount of my 2010 in-plan Roth rollover? Special income acceleration rules apply if you receive a distribution in 2010 or 2011 of any amount of the taxable portion of the 2010 in-plan Roth rollover that would not have been included in gross income until 2011 and 2012. Under these rules, you must increase gross income in the year of distribution by the amount of the distribution that you could have deferred to 2012 (or 2011 if you receive the distribution in 2010 and it is more than ½ of the taxable portion of the 2010 in-plan Roth rollover). In-plan Roth rollovers are not subject to the10% additional tax on early distributions. However, they are subject to a special recapture rule when a plan distributes any part of the in-plan Roth rollover within the 5-taxable-year period.
How do I report a 2010 distribution from the amount rolled over as my in-plan Roth rollover? You must file Form 8606, Nondeductible IRAs, with your 2010 tax return and complete certain lines of Part IV if you receive a distribution in 2010 of any amount of your in-plan Roth rollover.
Do I have to report my 2010 in-plan Roth rollover on my 2011 tax return? You must report half of the taxable amount of your 2010 in-plan Roth rollover on your 2011 income tax return unless you:
How do I report my 2010 in-plan Roth rollover on my 2011 tax return? How you report your 2010 in-plan Roth rollover depends on whether you received a distribution of any of the rollover over amount in 2010 or 2011 No 2010 or 2011 distributions
On your 2011 tax return, you must now report on Form 1040, line 16b (Form 1040A, line 12b; or Form 1040NR, line 17b) the smaller of the:
See Publication 575, Pension and Annuity Income, for additional information. Do I have to report my 2010 in-plan Roth rollover on my 2012 tax return? You must report half of the taxable amount of your 2010 in-plan Roth rollover on your 2012 income tax return unless you:
How do I report my 2010 in-plan Roth rollover on my 2012 tax return? How you report your 2010 in-plan Roth rollover depends on whether you received a distribution of any of the rolled over amount in 2010 or 2011. No distributions in 2010 or 2011 If you didn't receive a distribution in 2010 or 2011 of any amount of your 2010 in-plan Roth rollover, you must report the amount from line 25b of your 2010 Form 8606 on line:
2010 distributions
You can use the 2012 Taxable Amount Due to a 2010 In-Plan Roth Rollover - Worksheet under Rollovers in Publication 575 to calculate the amount to report on your 2012 tax return if you had 2010 distributions but no 2011 distributions. 2011 distributions
You would now report the remaining taxable amount of your 2010 in-plan Roth rollover by reporting the amount from your 2011 Form 8606, line 48, on line 16b of your 2012 Form 1040 (line 12b of Form 1040A or line 17b of Form 1040NR). 2012 distributions
If you only received qualified distributions in 2012 from your designated Roth account, you don’t have to report these distributions (because they aren’t taxable). However, you must still report the remaining taxable amount of your 2010 in-plan Roth rollover on your 2012 return. If you received a 2012 nonqualified distribution from a designated Roth account, add the taxable portion of your distribution to the remaining taxable amount of your 2010 in-plan Roth rollover and report the total amount on line 16b of your 2012 Form 1040 (line 12b of Form 1040A or line 17b of Form 1040NR). Return to 2010 In-Plan Rollovers FAQs Reporting & Recordkeeping Requirements for Designated Roth Accounts
Who is responsible for keeping track of the designated Roth contributions and 5-taxable-year period? The plan administrator is responsible for keeping track of the amount of designated Roth contributions made for each employee and the date of the first designated Roth contribution for calculating an employee’s 5-taxable-year period. In addition, the plan administrator of a plan directly rolling over a distribution would be required to provide the administrator of the plan accepting the eligible rollover distribution) with a statement indicating either the first year of the 5-taxable-year period for the employee and the portion of the distribution attributable to basis or that the distribution is a qualified distribution.
Since a qualified distribution from a designated Roth account is not subject to taxation, must the distribution be reported? Yes, a distribution from a designated Roth account must be reported on Form 1099–R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. For direct rollovers, the plan administrator is required to provide the plan administrator of the plan accepting an eligible rollover distribution, with a statement indicating either the first year of the 5-taxable-year period for the employee and the portion of the distribution attributable to basis, or, that the distribution is a qualified distribution. For other distributions, the plan administrator must provide to the employee, upon request, the portion of the distribution attributable to basis or that the distribution is a qualified distribution. The statement is required to be provided within a reasonable period following the employee request, but in no event later than 30 days following the employee request.
Since designated Roth contributions are already included as part of wages, tips & other compensation on Form W-2, must designated Roth contributions also be identified on Form W-2? Yes, contributions to a designated Roth account must be reported separately on Form W–2, Wage and Tax Statement.
Do employees have any recordkeeping or reporting obligations? An employee has no reporting obligation with designated Roth contributions in a plan. However, an employee rolling over a distribution from a designated Roth account to a Roth IRA should keep track of the amount rolled over in accordance with the instructions to Form 8606, Nondeductible IRAs. Return to Reporting & Recordkeeping Requirements FAQs Miscellaneous
Are my designated Roth contributions included in the 401(k) plan annual nondiscrimination testing? Yes, designated Roth contributions are treated the same as traditional, pre-tax elective contributions when performing annual nondiscrimination testing.
If I am is required to take a corrective distribution from my 401(k) plan because the plan failed the ADP nondiscrimination test, can I take some or all of the corrective distribution from my designated Roth account? Yes, a plan can provide that a highly compensated employee, as defined in Code §414(q), with both traditional, pre-tax elective contributions and designated Roth contributions during a year may elect to attribute excess contributions to pre-tax elective or designated Roth contributions. The plan does not have to provide this option and may provide for correction without permitting an HCE to make this election. A distribution of excess contributions is not includible in gross income if it is a distribution of designated Roth contributions. However, the income allocable to a corrective distribution of excess contributions that are designated Roth contributions is includible in gross income in the same manner as income allocable to a corrective distribution of excess contributions that are pre-tax elective contributions. The final Roth 401(k) regulations also provide a similar rule under the correction methods that a plan may use if it fails to satisfy the actual contribution percentage test.
Are designated Roth accounts included when determining whether a plan is top-heavy? Yes, they are treated just like other elective deferral accounts and must be included when calculating the top-heavy ratio each year. Return to Miscellaneous FAQs
Have a Question? If I have questions concerning designated Roth accounts, where do I go for help? For retirement plans technical and procedural questions: Please call the TE/GE Customer Account Services at (877) 829-5500 (a toll-free number). |
