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                                               Tax Exempt & Government Entities     
                                                                                  
                                             EMPLOYEE PLANS                      
                                                                                
                                                                                
                                                                           
                                               
                                               

Designated Roth Accounts

under a 401(k), 403(b) or governmental 457(b) plan

A designated Roth account is a separate account under a 

401(k), 403(b) or governmental 457(b) plan:

  to which designated Roth contributions are made, and
 
‧ for which separate accounting of contributions, gains and losses is 
 maintained.
‧

  An advantage of a designated Roth account is that you pay tax on your 
  contributions now, but later, when you receive a qualified distribution from 
  the account, it’s tax-free. Less tax on your plan distributions could mean 
  more money in your pocket during your retirement.

  Designated Roth contributions are elective contributions that, unlike pre-
  tax elective contributions, are currently includible in gross income — you 
  pay tax on these contributions now. If a 401(k), 403(b) or governmental 
  457(b) plan permits designated Roth contributions, it must also offer pre-
  tax elective contributions. You can contribute to a designated Roth account 
  even if your income is too high to be able to contribute to a Roth IRA.

  Similar to a Roth IRA, qualified distributions from a designated Roth 
  account, including all earnings, are tax-free. Unlike a Roth IRA, distributions 
  from a designated Roth account must begin when you turn age 72 (70½ if 
  you turned 70½ before January 1, 2020), unless you are still working and 
  not a 5% owner of the company sponsoring the plan.



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Review the following chart to compare contribution types, income limits, taxation of withdrawals and more for 
designated Roth accounts, Roth IRAs and pre-tax elective contribution accounts.

Which types of retirement accounts are right for you?
 PLAN FEATURE      DESIGNATED ROTH                                             ROTH IRA                          PRE-TAX ELECTIVE 
                                            ACCOUNT                                                              CONTRIBUTION 
                                                                                                                      ACCOUNT
 Contributions Designated Roth employee                               Roth IRA contributions are                 Traditional pre-tax 
               elective contributions are made                        made with after-tax dollars                employee elective 
               with after-tax dollars                                                                            contributions are made with 
                                                                                                                 pre-tax dollars
 Income Limits No income limitation to                                Income limits :1                           No income limitation to 
               participate                                                Married $208,000                       participate
                                                                        ‧ Single $140,000
                                                                        ‧
 Maximum       Combined 2employee elective                            Contribution limited to:                   Same combined limit as 
 Elective      contributions limited to lesser of:                        $6,000 ($7,000 for                     designated Roth account
                   $19,500 ($26,000 for                                 ‧ individuals age 50 or 
 Contributions   ‧ individuals age 50 or over), or                        over)
                   100% of compensation
                 ‧
 Taxation of   A withdrawal of contributions                          Same as designated Roth                    Withdrawals of 
 Withdrawals   and earnings is not taxed if it                        account and can have a                     contributions and earnings 
               is a qualified distribution — the                      qualified distribution for a               are subject to federal and 
               account is held for at least 5                         first-time home purchase                   most state income taxes
               years and made:
                   because of disability,
                 ‧ after death, or
                 ‧ after attainment of age 59½
                 ‧
 Required      Distributions must begin no later                      No requirement to start                    Same as designated Roth 
 Distributions than age 72 (70½ if turned 70½                         taking distributions while                 account
               before January 1, 2020), unless                        owner is alive
               still working and not a 5% owner

1All dollar limitations are for 2021. Visit www.irs.gov/retirementcola for annual updates in dollar limitations.
2This limitation is by individual, rather than by plan. Although you can split the annual employee elective contribution between designated Roth 
 contributions and pre-tax elective contributions, the combination cannot exceed the deferral limit for the year.

What are general concerns about designated Roth contributions?
Q. Can I make both pre-tax elective and designated Roth contributions in the same year?
A. Yes. If your plan allows, you can contribute to both a designated Roth account and a pre-tax elective contribution 
account in the same year in any proportion you choose. However, the combined amount of all elective contributions you 
make in 2021 is limited to $19,500. An additional $6,500 in catch-up contributions, for those age 50 or older, can also 
be allocated between the pre-tax and designated Roth accounts. 403(b) and governmental 457(b) plans have special 
catch-ups.

Q. Can my employer match my designated Roth contributions?
A. Yes. Your employer can make matching contributions on your designated Roth contributions. However, only your 
designated Roth contributions can be allocated to the designated Roth account. The matching contributions must be 
allocated to a pre-tax account.

Q. Can I change my mind and have designated Roth contributions treated as pre-tax elective contributions?
A. No. Once you designate contributions as Roth contributions, you cannot later change them to pre-tax elective 
contributions.



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Q. Does my employer need to establish a new account under my 401(k), 403(b) or governmental 457(b) plan to 
receive my designated Roth contributions?
A. Yes. Designated Roth contributions must be kept completely separate from previous and current 401(k), 403(b) or 
governmental 457(b) pre-tax elective contributions. Your employer must establish a separate account for each participant 
making designated Roth contributions.

What should you know about designated Roth account distributions?
Q. What is a qualified distribution from a designated Roth account?
A. A qualified distribution is generally a distribution made after a 5-taxable-year period of participation, and is:
       made on or after the date you attain age 59½,
     ‧ made on or after your death, or
     ‧ attributable to your being disabled.
     ‧
  A qualified distribution from a designated Roth account is not includible in your gross income.

Q. What happens if I take a distribution from my designated Roth account before the end of the 5-taxable-year 
period?
A. If you take a distribution from your designated Roth account before the end of the 5-taxable-year period, it is a 
nonqualified distribution. (The 5-taxable-year period of participation begins on the first day of your taxable year for which 
you first made designated Roth contributions to your plan. It ends when 5 consecutive taxable years have passed.) 
You must include the income portion of the nonqualified distribution in gross income and it may be subject to the early 
distribution tax. However, the basis (or contributions) portion of the nonqualified distribution is not included in gross 
income. The basis portion of the distribution is determined by multiplying the amount of the nonqualified distribution by 
the ratio of designated Roth contributions to the total designated Roth account balance.

       Example: If a nonqualified distribution of $5,000 is made from your designated Roth account 
       when the account consists of $9,400 of designated Roth contributions and $600 of earnings, the 
       distribution consists of $4,700 of designated Roth contributions (that are not includible in your 
       gross income) and $300 of earnings (that are includible in your gross income).

Q. Because I make designated Roth contributions from after-tax income (already taxed income), can I make tax-free 
withdrawals from my designated Roth account at any time?
A. No. The same restrictions on withdrawals that apply to pre-tax elective contributions also apply to designated Roth 
contributions. If your plan permits distributions from accounts because of hardship, you may choose to receive a 
hardship distribution from your designated Roth account. The hardship distribution will consist of a pro-rata share of 
earnings and basis. The earnings portion will be included in gross income unless you have had the designated Roth 
account for 5 years and are either disabled or over age 59½.

Q. Is a distribution from my designated Roth account for reasons beyond my control (for example, plan termination 
or severance from employment) a qualified distribution even though it does not meet the criteria for a qualified 
distribution?
A. No. If you have not held the account for more than 5 years or if the distribution is not made after death, disability 
or age 59½, then the distribution is not a qualified distribution. However, you could roll the distribution over into a 
designated Roth account in another plan or into your Roth IRA. A transfer to another designated Roth account must be 
made through a direct rollover.

What should you know about in-plan Roth rollovers?
Q. What is an “in-plan Roth rollover”?
A. An in-plan Roth rollover is a distribution or transfer from one or more of your retirement accounts (that don’t hold 
designated Roth contributions) that you roll over to your designated Roth account within the same plan.

Q. Which retirement plans may offer in-plan Roth rollovers?
A. Any plan that permits designated Roth contributions can offer in-plan Roth rollovers.



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Q. Who is eligible to make an in-plan Roth rollover?
A. Participants, surviving spouse beneficiaries and alternate payees (who are current or former spouses) are eligible to 
make an in-plan Roth rollover in a plan offering these rollovers.

Q. How can I make an in-plan Roth rollover?
A. If your plan allows in-plan Roth rollovers, you can make: 
       a direct rollover — by asking the plan trustee to transfer an amount from your non-Roth account or accounts in the 
     ‧ plan to your designated Roth account in the same plan; or
       a 60-day rollover — by having the plan distribute an eligible rollover distribution to you from your non-Roth account 
     ‧ or accounts in the plan and then depositing all or part of that distribution to your designated Roth account in the 
       same plan within 60 days. Because designated Roth accounts hold only after-tax contributions (and earnings on 
       those contributions), any untaxed amount rolled into a designated Roth account from a non-Roth account must be 
       included in your gross income.

Retirement Plan Information Resources
IRS Publications
       Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
     ‧
       Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain 
     ‧
       Tax-Exempt Organizations
       Publication 575, Pension and Annuity Income
     ‧
       Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)
     ‧
       Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
     ‧
       Publication 4222, 401(k) Plans for Small Businesses
     ‧
       Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses
     ‧
       Publication 4531, 401(k) Plan Checklist
     ‧
       Publication 4482, 403(b) Tax-Sheltered Annuities for Participants
     ‧
       Publication 4483, 403(b) Tax-Sheltered Annuities for Sponsors
     ‧
       Publication 4546, 403(b) Plan Checklist
     ‧
Employee Plans Assistance
       www.irs.gov/retirement
     ‧
       Customer Account Services at 877-829-5500
     ‧
Newsletter
       Subscribe online to Employee Plans News
     ‧

          Make better decisions about your retirement 

          today, and you’ll thank yourself tomorrow!

   Publication 4530 (Rev. 7-2021)  Catalog Number 48550X  Department of the Treasury  Internal Revenue Service  www.irs.gov





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