The Roth 401k Option

 

1. What is a Roth 401k or Roth 403b retirement plan?
and Are Roth 401k or Roth 403b new types of retirement plans?

Over time, there have been various new plans, as well as new features for existing plans.

Although Roth 401k's are not new plans, designated Roth contributions are a new type of contribution that can be accepted by new or existing 401k or 403b plans as of 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 employees 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 employees 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 SAR SEPs or SIMPLE IRA plans.

3. What limits are there on how much I may contribute to my designated Roth account?

The combined amount limit that can be 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 and how do they work?

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.