Roth 401K Plan

[Taxadvisor VA]

Client's employer counted a 401K Roth contribution by mistake. Employee decided to leave it alone and the W2 is correct.
ution.
Now, due to income threshold on a Roth IRA contribution being what it is, I did notice that if I entered he amount as if the employee made it direct that some of it would be considered an excess contribution.

Now, how does this work for a Roth 401K contribution? Is there a separate set of rules? I have never encountered this before so if anybody knows please kindly pass on your knowledge.

Thanks,

Taxadvisor VA

[Gene V]

Ttb 13-15

Differences between a Roth IRA and a Roth 401(k):

• Contributions are limited by the elective deferral limits of 401(k)
plans ($17,000 for 2012 for a participant under age 50).

• Distributions become mandatory at age 70½; however, a participant
can roll the Roth 401(k) funds over into a Roth IRA and
avoid the minimum required distribution rules.

• Participants in Roth 401(k) plans are not subject to the modified
AGI phase-out rules that apply to Roth IRAs. That means taxpayers
with AGI above $183,000 (2012 phase out for MFJ) can still
make Roth 401(k) contributions. However, they are subject to
the highly-compensated employee rules which limit their contribution
to the actual deferral percentage of other employees.

• Employer matching contributions cannot be designated Roth
contributions.

• Ordering rules for Roth IRA distributions (see page 13-5) do not
apply to Roth 401(k) nonqualified distributions. Taxable earnings
must be allocated to the distributions. (Reg. §1.402A-1)

Example: Jim took a $5,000 nonqualified distribution from his Roth
401(k). The account contained $10,000 of contributions and $1,000
of earnings. Gross income must include allocated earnings of $500
($1,000 ÷ $10,000 × $5,000). The 10% penalty may also apply.

[Taxadvisor VA]

Roth 401K versus Roth IRA

Gene V

Thank you for taking the time to send your note of information.

It was helpful and to the point so my question is answered.

Best Regards,

Taxadvisor VA