Roth 401k
Plans – The 401k Roth Option
Designated Roth Accounts Frequently Asked Questions
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1. What is a Roth 401k or Roth 403b?
Are Roth 401k or Roth 403b a new type of plan?
No, it is not a new type of plan. Designated Roth contributions are a new
type of contribution that can
be accepted by new or existing 401k or 403b
plans. This feature is permitted under a Code section added by the
Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA), effective for years beginning
on or after January 1, 2006. If a plan adopts this feature, employees can
designate some or all of their elective contributions as designated Roth
contributions, (which are included in gross income) rather than traditional,
pre-tax elective contributions. So, starting in 2006, elective contributions
come in two types: traditional, pre-tax elective contributions (elective
contributions are also referred to as elective deferrals) and designated
Roth contributions.
2. What is a designated Roth 401k or Roth 403b contribution?
A designated Roth contribution is an elective deferral to a section
401k or 403b plan that has been designated irrevocably by an employee as
not excludable from the employee’s gross income and to be deposited into a
designated Roth account under the plan. Thus, the contribution is treated by
the employer as includible in the employee’s gross income at the time the
employee would have received the amount in cash if the employee had not made
the election (hence subject to all applicable wage withholding
requirements). Designated Roth contributions are allowed in 401k plans and
403b plans but not in SARSEPs or SIMPLE IRA plans.
3. Are there any limits as to 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 by the 402(g) limit - $15,000 for 2006 ($15,500 in 2007 plus an
additional $5,000 in catch-up contributions if age 50 or older.)
4. What is a designated Roth 401k or Roth 403b account?
A designated Roth account is a separate account under a section 401k plan
or section 403b plan to which designated Roth contributions are made, and
for which separate accounting of contributions, gains, and losses is
maintained. This separate accounting requirement applies at the time the
designated Roth contribution is contributed to the plan and must continue to
apply until the designated Roth account is completely distributed.
Source:
Internal Revenue Service
Atlantic Financial can help you setup a new 401k plan or administer existing 401k
plans. We can also help your company serve former employees by
transferring them out of your plan and into their own IRA account with
an IRA Rollover - it's
better for the participants and saves the company money as well.
For more information or to have us answer any questions you
may have, please call 1-800-559-2900,
, or use this form to contact us:
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