A 401(k), 403(b) or governmental 457(b) plan may permit employees to designate some or all of their plan elective deferrals as after-tax Roth contributions. SARSEP and SIMPLE IRA plans may not offer designated Roth accounts.
To have a designated Roth contribution program, the plan document must be amended to provide:
- Separate accounts for designated Roth contributions
- A choice of both pre-tax and Roth elective deferrals
- That only Roth elective deferrals may be contributed to the designated Roth account (not profit-sharing or employer matching contributions or forfeitures)
Plans offering designated Roth accounts may include:
- Automatic enrollment of participants (including for designated Roth contributions)
- Plan loans
- Employer matching contributions (must be contributed to another account, not to the designated Roth account)
- In-plan rollovers to designated Roth accounts
Employer matching and profit-sharing contributions
Only employee elective deferrals may be contributed to a designated Roth account. Matching contributions and profit-sharing contributions may not be made directly to the designated Roth account. An employer may use designated Roth deferrals in calculating a matching contribution, but the match amount must be contributed to another account within the plan.
Tax treatment of designated Roth contributions
Designated Roth contributions are treated the same as pre-tax elective deferrals for many purposes, including:
- The annual contribution limits,
- Nonforfeitability and distribution restrictions,
- Nondiscrimination testing,
- Required minimum distributions, and
- Calculation of the plan’s deduction limits under Internal Revenue Code Section 404.