A designated Roth account is a separate account in a 401(k), 403(b) or governmental 457(b) plan that holds designated Roth contributions. The amount contributed to a designated Roth account is includible in gross income in the year of the contribution, but eligible distributions from the account (including earnings) are generally tax-free. The employer must separately account for all contributions, gains and losses to this designated Roth account until this account balance is completely distributed.
These FAQs provide general information and should not be cited as legal authority.
A designated Roth account is a feature in new or existing 401(k), 403(b) or governmental 457(b) plans. If a plan includes a designated Roth feature, employees can designate some or all of their elective deferrals as designated Roth contributions (which are included in gross income), rather than traditional, pre-tax elective contributions.
You may begin making designated Roth contributions to your 401(k), 403(b) or governmental 457(b) plan after you become a participant in a plan that allows contributions to Roth accounts. If your plan doesn’t have a designated Roth feature, the plan sponsor must amend the plan to add this feature before you can make 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.
Under IRC Section 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.
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.
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.
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 IRC Section 402(g)). The limit is $23,000 in 2024 ($22,500 in 2023; $20,500 in 2022; $19,500 in 2020 and 2021; $19,000 in 2019), plus an additional $7,500 in 2023 and in 2024 ($6,500 in 2020, 2021 and 2022 and $6,000 in 2015 – 2019) 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.
Yes, provided you are age 50 or older by the end of the year and the plan permits these contributions.
Yes, for 2022, if you are age 50 or older, you can make a contribution of up to $27,000 to your 401(k), 403(b) or governmental 457(b) plan ($20,500 regular and $6,500 catch-up contributions) and $7,000 to a Roth IRA ($6,000 regular and $1,000 catch-up IRA contributions) for a total of $34,000. Income limits apply to Roth IRA contributions, however. For 2023, if you are age 50 or older, you can make a contribution of up to $30,000 to your 401(k), 403(b) or governmental 457(b) plan ($22,500 regular and $7,500 catch-up contributions) and $7,500 to a Roth IRA ($6,500 regular and $1,000 catch-up IRA contributions) for a total of $37,500. Income limits apply to Roth IRA contributions, however.
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.
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.
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.
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.
No. Once you designate contributions as Roth contributions, you cannot later change them to traditional, pre-tax elective contributions.
No, in order to provide for designated Roth contributions, a plan must also offer traditional, pre-tax elective contributions.
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.
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.
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 IRC Section 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.
Yes. Under the universal availability requirement of IRC Section 403(b)(12), if any employee is given the opportunity to designate IRC Section 403(b) elective deferrals as designated Roth contributions, then all employees must be given that right.
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.
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 re-employed 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.
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:
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.
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.
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.
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, you must combine any loans you take from your designated Roth account with any other outstanding loans from that plan and any other plan maintained by the employer to determine the maximum amount you are permitted to borrow. The repayment schedule for your loan from your designated Roth account must separately satisfy the amortization and quarterly payment requirements.
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 another 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.
The IRS may waive the 60-day rollover requirement in certain situations if you missed the deadline because of circumstances beyond your control. See FAQs: Waivers of the 60-day rollover requirement.
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.
Yes, the following examples illustrate the rollover rules.
In in-plan Roth rollover is a rollover from your account, other than an account that holds designated Roth contributions, to your designated Roth account in the same plan.
401(k), 403(b) and 457(b) governmental plans that have designated Roth accounts may 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.
If your plan allows them, you can do an in-plan Roth:
No, you may not recharacterize an in-plan Roth rollover.
If your plan allows it, you can roll over any vested plan balance, including earnings, to a designated Roth account, even if these amounts can’t be distributed to you. You can make an in-plan Roth rollover of:
The plan can specify which of these amounts are eligible for in-plan Roth rollovers and how often these rollovers can be done.
Your plan may limit in-plan Roth rollovers to distributable amounts. If so, 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 you may obtain an in-service distribution.
Yes. 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 through a direct rollover as long as there is no change in the loan’s repayment schedule. 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.
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.
There is no income tax withholding required on an in-plan Roth direct rollover. However, if you receive a distribution from your plan, the plan must withhold 20% federal income tax on the untaxed amount even if you later roll over the distribution to a designated Roth account within 60 days. The IRS may waive the 60-day rollover requirement in certain situations if you missed the deadline because of circumstances beyond your control. See FAQs: Waivers of the 60-day rollover requirement.
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.
Plan sponsors shouldn’t withhold taxes from direct rollovers to designated Roth accounts, but employees who make in-plan Roth rollovers may need to increase their withholding or make estimated tax payments to avoid an underpayment 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 IRC Section 72(t) unless:
The 5-taxable-year period begins January 1 of the year of the in-plan Roth rollover and ends on December 31 of the fifth year. 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.
If the in-plan Roth rollover is of an amount that could be distributed to you under the plan, then the plan must include a description of it in the written explanation (402(f) Notice) that it gives to participants who receive an eligible rollover distribution. However, no 402(f) Notice is required for an in-plan Roth rollover of an amount that couldn’t be distributed at the time of the rollover.
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.
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.
Yes, contributions to a designated Roth account must be reported separately on Form W–2, Wage and Tax Statement.
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.
Yes, designated Roth contributions are treated the same as traditional, pre-tax elective contributions when performing annual nondiscrimination testing.
Yes, a plan can provide that a highly compensated employee (HCE), as defined in Code Section 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.
Yes, they are treated just like other elective deferral accounts and must be included when calculating the top-heavy ratio each year.
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