Beginning January 1, 2006, employers have been able to offer 401(k) plans that allow participants to contribute after-tax salary deferrals, referred to as Roth 401(k) deferrals, and to receive a distribution of these deferrals, plus earnings, on a tax-free basis.
Roth 401(k) accounts are similar to Roth IRAs, but unlike Roth IRAs, there are no compensation restrictions as to who is eligible. Any participant in a 401(k) plan that offers a Roth 401(k) election who is eligible to make pre-tax 401(k) deferrals may choose to make Roth 401(k) deferrals.
In order to be treated as Roth 401(k) deferrals: (1) the contributions must be designated as Roth 401(k) deferrals at the time they are made; (2) the employer must treat the contributions as includible in the participant's gross income; and (3) the 401(k) plan must maintain a separate account for the Roth 401(k) contributions and earnings.
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