Roth Elective Deferral Contributions
Roth elective deferrals are an optional plan feature that may be incorporated in an existing plan design by plan sponsors. These contributions are made with after-tax dollars, and any “qualified distributions” of the contributions plus earnings would be completely tax-free.
In order to determine if Roth elective deferrals are right for you, review details of things to consider (pdf) with this new savings opportunity. In addition, below is a side-by-side comparison of Roth 403(b)/401(k), Roth IRA and Traditional 401(k) Retirement Accounts.
Feature comparisons of Roth 403(b)/401(k), Roth IRA and Traditional 401(k) retirement accounts*
| Feature |
Designated Roth 403(b)/
401(k) Account |
Roth IRA |
Traditional, Pre-tax
401(k) Account |
| Contributions |
Designated Roth employee elective contributions are made with after-tax dollars. |
Roth IRA contributions are made with after-tax dollars. |
Traditional pre-tax employee elective contributions are made with before-tax dollars. |
| Income limits |
No income limitation to participate. |
Income limits:
• Married $166,000
• Single $114,000 (modified
AGI). |
No income limitation to participate. Same as designated Roth
401(k) account. |
| Maximum elective contributions |
Combined* employee elective contributions limited to: $15,500 in 2007. ($20,500 for employees 50 or over). |
Contribution limited to: $4,000 in 2007. ($5,000 for employees 50 or over.) |
Same combined** limit as designated Roth 401(k) account. |
| Taxation of withdrawals |
Withdrawals of contributions and earnings are not taxed provided they are a qualified distribution — the account is held for at least five years and made:
• because of disability,
• after death, or
• after attainment of age 59½. |
Same as designated Roth
401(k) account; and can have a qualified distribution for a first-time home purchase. |
Withdrawals of contributions and earnings are subject to federal and most state income taxes. |
| Required distributions |
Distributions must begin no later than age 70½, unless still working and not a 5% owner. |
No requirement to start taking distributions while owner is alive. |
Same as designated Roth 401(k) account. |
*Chart from IRS Publication 4530, Designated Roth Accounts Under a 401(k) or 403(b) Plan, 2007.
**This limitation is by individual, rather than by plan. Although permissible to split the annual employee elective contribution between designated Roth contributions and traditional pre-tax contributions, the combination cannot exceed the deferral limit — $15,500 ($20,500 if age 50 or over).