Roth 401(k) Information

Roth 401(k) Knowledgebase

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Contribution Issues	Pre-tax 401(k)	Roth 401(k)
Maximum Deferral Limit	Yes	Yes
Federal Tax Applies	No	Yes
State Tax Applies	In Certain States	In Certain States
FICA Tax Applies	Yes	Yes
Can Employer Deduct?	Yes	Yes
25% Deduction Limit Applies	No	No
Income Limits for Ability to Defer	No	No

Distribution Issues	Pre-tax 401(k)	Roth 401(k)
Federal Tax Applies	Yes	No, if qualified¹
State Tax Applies	In Certain States	?
Rollover to Traditional IRA, 403(b), 457(b), and other qualified Plans	Yes	No
Rollover to Roth IRA, Roth 403(b), and other Roth 401(k) Plans	No	Yes
Required Minimum Distributions	Yes	Yes; No, if rolled over to Roth IRA
Distribution Restrictions (hardship, age 59½, death, disability, terminate plan or employment)	Yes	Yes
Refund Contribution Taxed	Yes	No
Refund Earning Taxed	Yes	Yes
Double Taxation if Excess Contribution Not Distributed by April 15	Yes	Yes

¹Qualified tax-free distribution if held in Roth 401(k) account for 5 years and participant attains age 59½, dies or is disabled

Plan Qualification Issues	Pre-tax 401(k)	Roth 401(k)
ADP Testing	Yes	Yes
Top Heavy Test - §416	Yes	Yes
General Test Applies - §401(a)(4) Average Benefits Rate Group Gateway	Yes No No	Yes No No
Average Benefits Test - §410(b)	Yes	Yes
Annual Additions Limit - §415(c)	Yes	Yes
401(k) Safe Harbor	Yes	Yes
Deferral is 100% Vested	Yes	Yes

Comparison of Plans - Administration Issues

Administration Issues	Pre-tax 401(k)	Roth 401(k)
Loans Permitted	Yes	Yes
Eligible for Match	Yes	Yes
Eligible for Catch-up (Age 50 or older)	Yes	Yes
Contribution Separate Accounting	Yes	Yes
Earnings Separate Accounting	No	Yes
Participant-directed Investment	Yes	Yes
Included in determining eligibility for involuntary cash-out	Yes	Yes
Considered for QDRO	Yes	Yes
USERRA Make-up Contributions	Yes	Yes
W-2 Reporting of Deferrals	Yes	?

Advantage / Disadvantage	Pre-tax 401(k)	Roth 401(k)
Ease of Administration	Advantage	Disadvantage
Ease of Employee Communication	Advantage	Disadvantage
Tax Rate Decreases at Retirement	Advantage	Disadvantage
Tax Rate Unchanged at Retirement	Neutral	Neutral
Tax Rate Increases at Retirement	Disadvantage	Advantage
Highest Permissible Contribution	Disadvantage	Advantage
Tax Risk Diversification	Disadvantage	Advantage
Postpone Distribution until Death	Disadvantage	Advantage

Item	Roth 401(k)	Roth IRA
2006 Individual Contribution Limit	$15,000	$4,000
Catch-up Limit if 50 or older	$5,000	$1,000
Minimum Distribution Requirements	Applies (exception for actively employed non-5% owners)	Does Not Apply
First Time Home Buyer Exception	Does Not Apply	Applies
Qualified Distribution Five-year Rule	Clock starts in year of 1st contribution to 401(k) plan. If participant joins another employer plan, clock continues based on original contribution date if, and only if, original Roth account is rolled over into new employer plan.	1st year of 5-year period is the 1st contribution date to any Roth IRA. If participant rolls over Roth 401(k) to a Roth IRA, start year of the Roth 401(k) contribution is not considered. This means the 5-year period begins with the year of the rollover unless rolled over into a previous Roth IRA (or into new Roth IRA and previous Roth IRA exists).
Nonqualified Distribution Tax Treatment	For partial distributions, taxed based on proportionate distribution of principal and interest considering the Roth 401(k) account only.	Taxable based on 1st money in, 1st money out so tax-free principal is distributed first, then taxable interest. If Roth 401(k) acct rolled over to Roth IRA, then Roth IRA rules apply to rollover.