A designated Roth account is a separate account in a 401(k) or 403(b) plan to which designated Roth contributions are made. There must be separate accounting of contributions, gains and losses to this account. An eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. However, unlike other elective deferrals, designated Roth contributions are not excluded from gross income and are currently taxed. Qualified distributions from a Roth account are excluded from gross income.

The amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year ($16,500 for 2011 and $17,000 for 2012, $22,000 for 2011 and $22,500 for 2012 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions.

A qualified distribution is a distribution of designated Roth contributions that is excludable from gross income. A qualified distribution is one that is made at least five years after the year of the participant’s first designated Roth contribution (counting such first year as part of the five) and is made:

• On or after attainment of age 59½,
• On account of the participant’s disability, or
• On or after the participant’s death.

Since 2006 was the first year an employee could make designated Roth contributions, the earliest a qualified distribution can be made is January 1, 2011.

Additional Resources:

Retirement Plans FAQs regarding Designated Roth Accounts
Publication 4530, Designated Roth Accounts under 401(k) or 403(b) Plan
Comparison Chart
Notice 2006-44
Roth 401(k) final regulations
Final regulations under sections 402A relating to designated Roth accounts
Publication 560, Retirement Plans for Small Business (SEP, SIMPLE and Qualified Plans)