What are the Roth 401(k) contribution rules?


Quick Answer

As of 2015, Roth 401(k) contribution rules stipulate that deferrals to Roth 401(k) accounts are counted as gross income and subject to taxation when employees make them, reports the Internal Revenue Service. Employers must keep traditional 401(k) and Roth 401(k) contributions in separate accounts. Contributions to Roth 401(k) accounts have an annual limit.

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Full Answer

If a 401(k) plan allows Roth contributions, all employees can participate regardless of their incomes, explains the IRS. Because employees pay taxes on Roth 401(k) contributions when they make them, distributions from Roth accounts are tax-free. Employees must have the opportunity to contribute to a Roth 401(k) account at least once a year. Once employees designate their contributions for Roth 401(k) accounts, they cannot later move the contribution to a traditional 401(k) account.

Roth 401(k) accounts are subject to the same annual contribution restrictions as traditional 401(k) accounts, according to the IRS. The total yearly contribution employees can make to one or more 401(k) accounts is $18,000. Additionally, people 50 or older can make annual catch-up contributions of $6,000. Employers can also make matching contributions to Roth 401(k) accounts. Employees are only allowed to make contributions to Roth 401(k) accounts for themselves but not for their spouses.

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