Designated Roth Account

Posted in Finance, Accounting and Economics Terms, Total Reads: 204

Definition: Designated Roth Account

It refers to an account in a 401(k), 403(b) or governmental 457(b) plan which is identified to hold designated Roth contributions. We have used couple of obtruse terms here. Let’s get to them one by one.

401(k), 403(b), 457(b) plans are certain tax advantaged retirement plans:

401(k): These plans can be established by any nongovernment employer or by a government if the plan was established before May 1986

403(b): These plans are established by public educational employers or tax-exempt organizations.

457(b): These are established by Governments or by tax-exempt organizations.

Let us understand designated Roth contributions now:

It is a type of elective deferral which employees can make to their respective 401(k), 403(b) or 457(b) retirement plan. Here, the employee irrevocably designates the deferral as an after-tax contribution which the employer is obligated to deposit into the designated Roth account.

This has implications for the employer too. The employer will include the amount of the designated Roth contribution in the employee’s gross income at the time the employee would have received the amount in cash if he had not made the election.



Looking for Similar Definitions & Concepts, Search Business Concepts

Similar Definitions from same Category: