A designated Roth account [1] is an IRA into which employees can opt to put a portion, or all, of their contributions. This account is a separate account held within their 401(k) [2] or 403(b) plans [3]. All accounting is done separately from that conducted for the employee’s regular contributions and handled by the employer.
It is permissible for employers to make the usual matching contributions to a designated Roth account. The employee can contribute funds to both a traditional IRA and the designated Roth account every tax year; however, total contributions remain subject to annual limits.
Designated Roth contributions can be excluded from gross income [4]. Furthermore, distributions that occur more than five years after the original contributions to the account, and aren’t made until after the investor reaches 59 1/2, becomes disabled or dies, qualify for income exclusion.
The total allowed contribution to all accounts is limited and adjusted periodically. For those over 50, additional catch up contributions [5] are also approved for deposit into a designated Roth account. Once contributions are designated as Roth contributions, they cannot be changed later on. It is also prohibited to make contributions to a Roth 401(k), Roth 403(b) [3] or Roth governmental 457(b)for a spouse, even though you can make such deposits into traditional or Roth IRAs for them.
Distribution from a designated Roth account follows the same rules as those applied to typical retirement accounts. For a qualified distribution to be made under other circumstances it has to wait until after the 5-taxable-year period has passed. That period begins on the first day of the taxable year in which the first designated Roth contributions were made.