Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. However, unlike other elective deferrals, designated Roth contributions are not excluded from your gross income but qualified distributions from a Roth account are excluded from your gross income.
Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year ($15,500 for 2007, $20,500 if 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions.
Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including:
- The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) – $15,500 in 2007 and also in 2008, with an additional $5,000 if age 50 or over,
- Determining the maximum employee and employer annual contributions – the lesser of 100% of compensation or $45,000 for 2007 ($46,000 in 2008) and subject to cost-of-living adjustment thereafter,
- Nondiscrimination testing,
- Required distributions, and
- Elective deferrals not taken into account for purposes of deduction limits.
A qualified distribution is a distribution that is made after the employee's nonexclusion period and:
- On or after the employee attains age
591/2, - On account of the employee's being disabled, or
- On or after the employee's death.
An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years.
- The first tax year in which the employee made a designated Roth contribution to the plan, or
- If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account.
Since 2006 was the first year an employee could make designated Roth contributions, the earliest a qualified distribution can be made is January 1, 2011.
A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. Rollover amounts do not apply toward the annual deferral limit.
You must report a contribution to a Roth account on Form W-2, Wage and Tax Statement, and a distribution from a Roth account on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. See the Form W-2 and 1099-R instructions for detailed information.
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