1. F AQ: ROTH 401(K) 1
What is a Roth 401(k)?
Employers sponsoring 401(k) plans may allow participants to make Roth 401(k) contributions on an
after-tax basis. When a plan sponsor elects to add a Roth 401(k) feature, Roth 401(k) contributions are
recordkeeper separately from other contributions to the plan so that the special rules applicable to
Roth 401(k) contributions may be followed. In this way, the Roth 401(k) is not a separate retirement
plan, but rather it is a unique feature of the 401(k) plan sponsored by the organization. Participants
simply direct desired contributions in their chosen proportions (up to the stated legal maximums) to the
pre-tax 401(k) deferral source and/or the after-tax Roth 401(k) source using the administrative
processes supported by the plan sponsor and the recordkeeping vendor. The participant’s decision to
designate certain contributions as Roth contributions is irrevocable.
What are the potential benefits of adding a Roth 401(k) feature to the 401(k) plan?
Adopting a Roth 401(k) feature allows participants to contribute after-tax dollars to their retirement plan
account. Earnings, if any, on the Roth 401(k) contributions grow on a tax-free basis, meaning that
participants will not pay income tax on distributions from the Roth 401(k) contribution source. In
addition to the avoidance of tax on Roth earnings, highly compensated participants who are not able to
make Roth IRA contributions because their adjusted gross income is higher than the established
maximum are not subject to similar income restrictions when deciding whether to make Roth 401(k)
contributions. Unlike Roth IRAs, there are no maximum income limits for Roth 401(k) contributions.
What types of employees are more likely to benefit from the Roth 401(k) feature?
The following types of employees are more likely to benefit from the addition of a Roth 401(k) feature:
• Participants who have a longer period of time until retirement, giving them a longer period of
time to accumulate tax-free earnings.
• Participants who expect to be in a higher tax bracket later when they take distributions from
the Roth 401(k) contribution source.
• Highly compensated employees who are not eligible for a Roth IRA due to adjusted gross
income thresholds.
• Participants who want to ensure that their beneficiaries receive tax-free dollars.
Participants who may not benefit from the Roth feature are those expecting Social Security benefits to
be their main source of retirement income, participants expecting the same or a lower income tax rate
in retirement, and lower income participants who qualify for certain tax credits in current taxable years.

2. Is there a limit on Roth 401(k) contributions?
Yes, the combined contribution limit for both after-tax Roth contributions and pre-tax 401(k)
contributions is set by Internal Revenue Code §402(g). The limit is $17,500 in 2013, plus an additional
$5,500 in catch-up contributions if the participant will be age 50 or older at the end of the year. Age 50
catch-up contributions may be designated as Roth contributions. The applicable contribution limits may
be increased in later years to reflect cost-of-living adjustments. Participants who make Roth 401(k)
contributions within the 401(k) plan may also make Roth IRA contributions to their Roth IRA up to the
stated Roth IRA contribution maximums, so long as they meet the Roth IRA eligibility requirements.
Are there any special rules that apply to the Roth 401(k) contributions?
Yes, the following special rules apply to Roth 401(k) contributions:
• Unlike pre-tax 401(k) contributions, after-tax Roth 401(k) contributions do not reduce the
participant's taxable income when they are made and earnings on these contributions are
generally not taxable upon withdrawal.
• Plan sponsors must give participants the opportunity at least once per plan year to make
designated Roth contributions.
• The qualified distribution criteria applicable to withdrawals of Roth 401(k) amounts require that
the Roth account be established for at least 5 years prior to the withdrawal request (measured
generally from the first day of the first taxable year during which Roth 401(k) contributions are
made) AND the distribution is being taken after the participant reaches age 59½, becomes
permanently disabled or dies. If these criteria are not met, the participant will be taxed on the
Roth 401(k) earnings.
Can participants roll over their Roth 401(k) contributions to other retirement plans or IRAs?
Once a participant is eligible for a distribution from the Roth 401(k) contribution source, Roth 401(k)
accounts may be rolled directly into other designated Roth accounts, including those established in a
Roth 401(k), a Roth 403(b), a Roth 457(b) or a Roth IRA. Rollovers of Roth accounts may have an
impact on the 5-year holding period described above. Indirect rollovers of Roth 401(k) contributions are
problematic and should be avoided.

3. What is an in-plan Roth rollover?
An in-plan Roth rollover is a distribution from a participant’s non-Roth contribution sources that is rolled
over to the Roth contribution source within the same plan at the participant’s direction. After weighing
the administrative impacts and special rules associated with in-plan Roth rollovers, plan sponsors can
decide whether or not to allow them.
Can participants take loans from their after-tax Roth 401(k) contributions?
Yes, plan sponsors may decide to permit participant loans from Roth 401(k) contribution sources.
However, the plan sponsor’s administrative processes related to participant loans may be affected by a
decision to allow loans from the after-tax Roth contributions. Plan loans are subject to certain legal
requirements and the plan sponsor’s administrative policies.
Can a participant be automatically enrolled in the Roth 401(k) feature?
Yes, a plan sponsor can elect to automatically enroll its employees in the 401(k) plan for purposes of
pre-tax and after-tax Roth contributions. The automatic enrollment rules apply and the plan must state
how the employer will allocate automatic contributions between pre-tax contributions and Roth
contributions.
If the employer makes a matching contribution to the plan, will that contribution also need to be
made on a participant's Roth 401(k) contributions?
The plan's design will determine whether the employer will make the stated employer contribution on
Roth 401(k) contributions. The employer must decide to include or exclude Roth contributions for
purposes of making the matching contribution. If matching contributions are made by the employer on
the participant’s Roth 401(k) contributions, the matching contributions are made on a pre-tax basis and
earnings on the employer-made matching contributions are taxable at distribution.
How is a Roth 401(k) feature established in a 401(k) plan?
A Roth 401(k) feature may be added to a 401(k) plan at any time by adopting a plan amendment
prescribing the addition of the Roth 401(k) feature. A thoughtful communications strategy will promote
the feature to the participant population so that they understand and feel comfortable using it.
Additionally, the payroll file transmitting contribution and other data each payroll period may need to be
updated to include a column for Roth 401(k) contributions. Each recordkeeping vendor will have its
own administrative requirements for the establishment and operation of a Roth 401(k) feature.

4. In summary, what are the general requirements associated with establishing a Roth 401(k)
feature?
The general requirements for adopting a Roth 401(k) feature are:
 Check with your retirement plan's recordkeeper to determine how the adoption of a Roth
401(k) feature would impact the administration of the plan;
 Amend the plan document to adopt a Roth 401(k) provision and set rules around how this
feature will be administered;
 Make any necessary changes to internal administrative procedures;
 Effectively communicate the addition of the Roth 401(k) feature to participants and employees
(plan sponsors may also conduct surveys or solicit feedback from a focus group to determine
participant interest in a Roth 401(k) feature);
 Allow participants the opportunity to make designated Roth contributions at least once
annually; and,
 Follow the plan’s Roth 401(k) provisions and continue to educate participants about the
potential benefits of this feature on an ongoing basis.
Additional requirements may apply depending upon the plan’s design and the vendor’s administrative
processes.
Where can I find additional information regarding the adoption of a Roth 401(k) feature?
Your consultant at the Multnomah Group can help you determine whether adopting a Roth feature
would be advantageous for your plan.
Multnomah Group, Inc.
Phone: (888) 559-0159
Fax: (800) 997-3010
www.multnomahgroup.com
1 This FAQ is not intended to be legal advice and should not be construed as such. Information relayed herein is representative of the Multnomah Group’s current
understanding of the law. While the Multnomah Group has made every reasonable effort to ensure that the information contained herein is factual, we do not
warrant its accuracy. Additionally, this FAQ does not embody a comprehensive legal study, but rather reflects the information most often sought by our clients. As
the information contained herein is general in nature, you are urged to contact your legal adviser with questions related to the specific application of these rules to
your plan.