What are Roth 401(k) deferrals, and how do they work?
First available for plan years beginning in 2006, Roth 401(k) contributions are salary deferrals that are made on an after-tax basis instead of the pre-tax basis of traditional 401(k) deferrals. The tax treatment of the two types of deferrals is similar to that of traditional and Roth IRA contributions, although there is no income limitation in determining eligibility to make Roth 401(k) deferrals. Roth 401(k) deferrals are aggregated with traditional pre-tax 401(k) deferrals for all plan limits and testing purposes. The Roth 401(k) regulations are somewhat complicated and impose several additional rules on retirement plans. The attached chart prepared by the IRS provides a brief overview of many of the similarities and differences between Roth 401(k) deferrals, traditional pre-tax deferrals, and Roth IRAs. If you would like more details on this optional plan feature, please contact us. IV. General Information about Flexible Spending (Cafeteria) Plans 1.
