A designated Roth account is a separate account in a 401(k) or 403(b) plan to which designated Roth contributions are made. Designated Roth contributions are not excluded from gross income and are currently taxed. Qualified distributions from a Roth account, including earnings, are excluded from gross income. The plan must separately account for contributions, gains and losses to this account. A SARSEP or SIMPLE IRA plan may not offer designated Roth accounts. An eligible employee can designate all or a portion of his or her elective salary deferrals as after-tax Roth contributions. The amount an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals for the year ($23,000 in 2024; $22,500 in 2023; $20,500 in 2022; $19,500 in 2020-2021; $30,500 in 2024, $30,000 in 2023, $27,000 in 2022 and $26,000 in 2020-2021 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. A qualified distribution of designated Roth contributions 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 the 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. Establishing a designated Roth contribution program Contributing to a designated Roth account Designated Roth account distributions In-plan rollovers to designated Roth accounts Additional resources for designated Roth accounts Establishing a designated Roth contribution program 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. Back to top Contributing to a designated Roth account Employers may offer employees an opportunity to make after-tax salary deferral contributions to a separate designated Roth account in the employer's 401(k), 403(b) or governmental 457(b) retirement plan. Unlike pre-tax elective deferrals, the amount employees contribute to a designated Roth account is includible in gross income. However, distributions from the account are generally tax-free, including previously untaxed earnings in the account. (See which qualified distributions are tax-exempt). Benefits of designated Roth accounts Compared to a Roth IRA, designated Roth accounts: Offer larger annual contribution limits than Roth IRAs, Are not subject to the modified gross income limitations that restrict some individuals from contributing to Roth IRAs, and Allow participants to keep their Roth and pre-tax savings within a single plan. See our Roth Comparison Chart and Ten Differences between a Roth IRA and a Designated Roth Account for help in deciding whether to contribute to a Roth IRA, designated Roth account or pre-tax elective deferral account. Each type of account has different benefits and features. Contribution limits The combined amount a participant may contribute as pre-tax elective deferrals and designated Roth contributions each taxable year is limited. Total contributions to the plan are limited to $23,000 in 2024 ($22,500 in 2023; $20,500 in 2022; $19,500 in 2020 and 2021; $19,000 in 2019) plus for employees age 50 or older, an additional $7,500 in 2023 and 2024; $6,500 in 2020, in 2021 and in 2022 ($6,000 in 2015 - 2019). For later years, the limits are subject to cost-of-living adjustments. Allocating elective deferrals between Roth and pre-tax accounts Participants may contribute to both a designated Roth account and a traditional pre-tax elective deferral account in their plan in the same year. They may allocate their contributions in any proportion they desire, as permitted under the terms of the plan. Total contributions to the pre-tax elective deferral and Roth accounts cannot exceed the annual contribution limit. No recharacterizations are allowed Once a participant contributes to a designated Roth account, the participant cannot later change the contributions to pre-tax deferrals (no "recharacterizations" are allowed). In-plan rollovers to designated Roth accounts Participants may be able to roll over an "eligible rollover distribution" to a designated Roth account from another account in the same plan. Required minimum distributions start at age 72 (70 ½ if reach 70 ½ before January 1, 2020) Designated Roth accounts are subject to the required minimum distribution rules that apply to 401(k), 403(b) and governmental 457(b) plans. In general, if the participant is retired or an owner, the participant must start receiving distributions from the plan at age 72 (70 ½ if reach 70 ½ before January 1, 2020), and annual withdrawals will be required based on his or her remaining life expectancy at the time of the withdrawal. Roth IRAs, in comparison, do not require minimum distributions at age 72 (70 ½ if reach 70 ½ before January 1, 2020). Matching contributions and forfeitures Matching contributions and forfeitures may not be allocated to a designated Roth account. However, employers may take into account designated Roth contributions in calculating any matching contributions under the terms of the plan. These amounts must be contributed to another account in the plan. Back to top Distributions from a designated Roth account A qualified distribution from a designated Roth account is excludable from gross income. A qualified distribution is one that occurs at least five years after the year of the employee's first designated Roth contribution (counting the first year as part of the five) and is made: On or after attainment of age 59½, On account of the employee's disability, or On or after the employee's death. Nonqualified distributions A distribution that is not a qualified distribution will be partially included in gross income if there are earnings in the account. The distribution will be treated as coming pro-rata from earnings and contributions (basis). The 10% tax on early withdrawals may apply to the part of the distribution that is includible in gross income. Required minimum distributions Designated Roth accounts are subject to the required minimum distribution rules. A participant must begin taking annual distributions from the account by the later of age 72 (70 ½ if they reach 70 ½ before January 1, 2020) or retirement, except certain owners must begin distributions at age 72 (70 ½ if they reach 70 ½ before January 1, 2020). Rollovers of designated Roth account distributions An eligible rollover distribution from a designated Roth account may be rolled over to: another designated Roth account, or a Roth IRA. Distributions from designated Roth accounts may not be rolled over to another account in a plan or to a traditional IRA. A qualified distribution may be rolled over to another designated Roth account only in a direct rollover. A partial rollover of a nonqualified distribution is treated as consisting first of the untaxed portion of the distribution. Example: Joe receives a $14,000 eligible rollover distribution that is not a qualified distribution from his designated Roth account. The distribution consists of $11,000 of Joe's own contributions to the account (his investment, which has already been taxed) and $3,000 of earnings on the account (which has not been taxed). Within 60 days of receipt, Joe rolls over $7,000 of the distribution into a Roth IRA. The $7,000 is deemed to consist of $3,000 of earnings and $4,000 of his contributions. Because only the portion of the distribution that would be includible in income is rolled over, none of the distribution is taxable to Joe. Back to top In-plan rollovers to designated Roth accounts A plan with a designated Roth program can allow rollovers to a designated Roth account from another account in the same plan (an "in-plan Roth rollover"). Designated Roth accounts can't be set up solely to accept in-plan rollovers - they must also accept elective deferrals from participants. Amounts eligible for in-plan Roth rollovers Any vested plan balance, including earnings, can be rolled over to a designated Roth account. The amount doesn't have to be eligible for distribution; however, the rollover must be direct (not a 60-day rollover) if the amount is not otherwise eligible for distribution. A plan can allow in-plan Roth rollovers of: elective salary deferrals matching contributions nonelective contributions after-tax employee contributions amounts rolled into the plan from another plan qualified matching contributions (QMACs) qualified nonelective contributions (QNECs) The plan can specify which of these amounts are eligible for in-plan Roth rollovers and how often these rollovers can be done. Who can elect an in-plan Roth rollover? The plan participant (employee), surviving spouse beneficiary, or alternate payee who is a spouse or former spouse can elect an in-plan Roth rollover. Participant's tax consequences An in-plan Roth rollover usually results in taxable income to the participant. A typical rollover from a pre-tax account will result in the entire amount of the rollover, including earnings, being included in gross income. The amount includible in gross income for the year of the rollover is: the amount rolled over, less any basis in the amount transferred. Participants may want to increase their tax withholding amount or make an estimated tax payment for the period in which the in-plan Roth rollover is completed. The additional 10% early withdrawal tax doesn't apply to the amount of an in-plan Roth rollover. However, the distribution may be taxable and subject to the additional early withdrawal tax if the participant withdraws it from the designated Roth account within five years (see the FAQs). In-plan Roth rollover is irreversible An in-plan Roth rollover cannot be reversed after the transfer is made. The rolled over amounts can't later be returned to the transferring account. Rollovers to Roth IRAs also can't be recharacterized. In-plan Roth rollovers as distributions A direct rollover to a designated Roth account is generally treated as a distribution followed by a transfer to the Roth account. But: A plan loan transfer isn't treated as a new loan Spousal consent isn't required The rollover is counted in determining whether the accrued benefit exceeds $5,000 Rights to optional forms of distribution aren't eliminated The plan sponsor doesn't have to give the participant a 402(f) notice (explaining the rollover options) for an in-plan Roth rollover of an otherwise nondistributable amount. Notice 2010-84, as modified by Notice 2013-74, provides guidance relating to rollovers under Section 401(k) plans to designated Roth accounts in the same plan ("in-plan Roth rollovers"). 2014 amendment deadline applied to Roth provisions effective in 2013 and 2014 Plan sponsors may want to allow participants to make in-plan Roth rollovers of otherwise nondistributable amounts. Sponsors generally had until the end of 2014 to add an amendment permitting in-plan Roth rollovers for 2013 and 2014. See the amendment deadlines. Withholding on in-plan Roth rollovers Plan sponsors shouldn't withhold taxes from direct rollovers to designated Roth accounts. If you receive your distribution in cash, however, the plan sponsor must withhold 20% federal income tax even if you later roll over your distribution to a designated Roth account within 60 days. Back to top Additional resources for designated Roth accounts Publication 4530, Designated Roth Accounts under a 401(k) or 403(b) PDF Designated Roth accounts FAQs Comparison chart of 401(k), Roth 401(k) and Roth IRAs Differences between Roth IRAs and designated Roth accounts Notice 2013-74, Guidance on amounts eligible for in-plan Roth rollovers Notice 2010-84, Guidance on in-plan Roth rollovers Notice 2006-44, Sample amendment for Roth 401(k) CODA list of required modifications (LRMs) PDF Final regulations on designated Roth contributions to cash or deferred arrangements under IRC Section 401(k) (T.D. 9237, January 3, 2006) Final regulations under Section 402A relating to designated Roth accounts (T.D. 9324, May 29, 2007) Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) FAQs: Waivers of the 60-day rollover requirement
