401K Roth plan

Added by Sarah Debza, last edited by Marcio Leoni on May 07, 2010 (view change)

401k Roth plan

Is it a new type of plan?
No, it is not a new type of plan. Designated Roth contributions are a new type of contribution that can be accepted by a new or existing 401(k) plan. This feature is permitted under a Code section added by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), effective contributions for years beginning on or after January 1, 2006. If a plan adopts this feature, employees can designate some or all of their elective as Roth 401(k) post-tax contributions as part of their existing elective deferral plan offering.

Can I make both pre-tax elective and 401K Roth post-tax contributions in the same year?
Yes, you can make contributions to both a Roth 401K account and a traditional, pre-tax account in the same year in any proportion you choose. An eligible employee may contribute post-tax dollars only towards the Roth 401(k) plan and pre- and post-tax dollars towards their 401(k) plan. However, the combined amount contributed in any one year is limited by the 402(g) limit - $15,000 for 2006 (plus an additional $5,000 in catch-up contributions if age 50 or older).

Are there any limits as to how much I may contribute to my Roth 401K account?
Yes, the combined amount contributed to all 401K Roth accounts and traditional, pre-tax accounts in any one year for any individual is limited by the 402(g) limit - $15,000 for 2006 (plus an additional $5,000 in catch-up contributions if age 50 or older).

Can the employer make matching contributions on the Roth 401K contributions?
The employer can make matching contributions on 401K Roth contributions. The matching contributions made on account of 401K Roth contributions must be allocated to a pre-tax account, just as matching contributions on traditional, pre-tax elective contributions are.

How can I configure my system to allow Roth 401K contributions?

A step by step guide is provided to configure the system for Roth 401K post-tax contributions. a) Create a new Roth 401K plan in the system under a benefits area using IMG configuration step: Personnel Management -> Benefits -> Plans -> Savings Plans -> Define SavingsPlan General Data. b) Enter the required details for the plan. Select the 'Roth Plan' and 'Qualified Plan' checkbox. c) Create an employee contribution variant as per the requirement with IMG configuration step: Personnel Management -> Benefits -> Plans -> Savings Plans -> Define Employee Contribution Variants. d) Assign employee contribution rule to the employee contribution variant with the IMG configuration step: Personnel Management -> Benefits -> Plans -> Savings Plans ->Define Employee Contribution Rules. Check only post tax contributions for Roth 401K plan. e) Create an employer contribution variant as per the requirement with IMG configuration step: Personnel Management -> Benefits -> Plans -> Savings Plans -> Define Employer Contribution Variants. f) Assign employer contribution rule to the employer contribution variant with the IMG configuration step: Personnel Management -> Benefits -> Plans -> Savings Plans ->Define Employer Contribution Rules. g) Assign the variants to the Roth 401K plan with IMG configuration step: Personnel Management -> Benefits -> Plans -> Savings Plans -> Assign Savings Plan Attributes. h) Assign the wage types to Roth 401K plan in the payroll with IMG configuration step: Payroll -> Payroll USA -> Benefit Integration -> Enter Wage types for plan. i) If the plan allows catch-up contribution, configure the catch-up wage types using the IMG configuration step: Payroll -> Payroll USA -> Benefit Integration -> Set up catch up contribution Note: BT40 is the model wage type provided by SAP to configure the post-tax catch-up wage type for Roth 401k plan.