401(k) Roth Contributions

It is becoming more common for 401(k) plans to also offer participants the option of making all or part of their deferral contributions to the plan on an after-tax basis by designating them as Roth contributions. Designated Roth contributions are made through payroll deductions and are subject to the same limits and deposit timing rules as 401(k) deferral contributions, but they must be accounted for separately under the plan. This separate accounting requirement is due to the tax treatment of Roth contributions. They are included in gross income and taxed at the time they are contributed; however, special tax rules apply to “qualifying distributions” from designated Roth accounts which allow the participant to receive distributions of their Roth contributions, including investment earnings on those contributions, on a tax-free basis.

For information regarding “qualifying distributions,” click here.

It is important to note that Roth contributions are not the same as regular after-tax contributions. Prior to the availability of Roth contributions, some plans permitted participants to make regular after-tax contributions, but most plans no longer allow for regular after-tax contributions. It is possible for a plan to have a non-Roth after-tax contribution account which includes after-tax contributions made in the past.