Designated Roth Accounts
A designated Roth account is a separate sub-account within a qualified plan (such as a 403(b), or governmental 457(b)) where you can make after-tax elective contributions (designated Roth contributions). These contributions are included in your taxable income for the year you make them, but if certain conditions are met, qualified distributions (including earnings) are tax-free.
Employers must keep contributions and earnings in the designated Roth account separate from pre-tax elective contribution accounts.
You may contribute to both a traditional pre-tax elective contribution account and a designated Roth account in the same year, in any proportion allowed by your plan. Unlike a Roth IRA, your income level does not limit your ability to make designated Roth contributions.
Why It Matters
Choosing to contribute to a designated Roth account gives you the benefit of paying taxes now on your contributions so that future qualified withdrawals (including earnings) are tax-free. This can be especially valuable if you believe you’ll be in a higher tax bracket later, or value tax diversification in retirement.