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February 19, 2009

Designated Roth Contribution

Your Guide

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Definition

An elective deferral contribution to a section 401(k) or 403(b) plan that satisfies the following requirements:

  • Has been designated irrevocably by a participant as not excludable from the employee’s gross income.
  • Designated to be deposited into a designated Roth account under the 401(k)  or 403(b) plan.
  • The contribution is treated by the employer as includible in the participant’s 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).
  • The contributions are maintained in a separate account from other 401(k) or 403(b)  assets.

 Accounts to which these contributions are made are designated Roth accounts

Referring Cite

IRC § 402A , IRS Notice 2005-95, Treas. Reg. §1.401(k)-1(f)(1), Treas. Reg. §1.401(k)-6, Treas. Reg. §1.401(m)-5, Prop. Treas. Reg. § 1.403(b)-7(a), Prop.Treas. Reg. § 1.403(b)-5(b)(1)

Additional Helpful Information

  • Designated Roth contributions are allowed in 401(k) plans and 403(b) plans but not in SARSEPs or SIMPLE IRA plans.
  • Designated Roth contributions are included in the same tests as pre-tax salary deferral 401(k) contribution.
  • Designated Roth contributions are subject to the salary deferral limits under IRC §402(g). Therefore, an individuals aggregate contribution for a designated Roth 401(k) and a traditional 401(k), 403(b), SARSEP or SIMPLE IRA cannot exceed the dollar limit in effect for the year, plus catch-up contribution. The limit is for 2021 is $19,500 plus catch-up contribution of $6,500.

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Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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