Designated Roth Account Overview

By Kaye A. Thomas
Current as of November 16, 2013

Tax-free retirement savings come to the 401k/403b world.

As briefly as possible, a designated Roth account is an account in an employer plan, such as a 401k or 403b, that functions pretty much like a Roth IRA. You get no deduction when the money goes in, but you’ll have a huge advantage later because you’re building an account where earnings will be permanently tax-free. For most people who are eligible, a designated Roth account will be preferable to a traditional account.

Am I eligible?

You’re eligible if you participate in your employer’s 401k or 403b plan and your employer has chosen to offer these accounts. Unlike the Roth IRA, you don’t lose eligibility when your income grows too large.

What if my company doesn’t offer Roth accounts?

In that case you’re out of luck, at least for now. These accounts have been allowed only since 2006, and many companies are adding them as demand grows.

How do I participate?

These accounts work the same as traditional accounts, except now your employer will provide a form on which you can designate some or all of your retirement savings to go into a Roth account.

Will my company provide matching contributions?

If you choose a Roth account, you’ll get the same matching contributions you would have received if you contributed to a traditional account. The matching contributions will still go into a traditional account, even if your own contributions go into a Roth account.