A designated Roth account 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) or 403(b) plans. 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. 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 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) 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.
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