Of course, general contributions to a Roth 401 (k) cannot exceed your compensation. It is important to note that a traditional 401 (k) plan can be incorporated into a Roth 401 (k) plan (although you will pay taxes on the accrued amount). However, once funds from any source are in the Roth 401 (k) plan, they cannot be moved to a traditional 401 (k) plan. However, they can be transferred to a Roth IRA.
While you can transfer funds from a traditional 401 (k) to a Roth 401 (k), it's not possible to do the opposite. Once money is placed in a Roth 401 (k), from any source, it cannot be transferred to a traditional 401 (k). The employer's equivalent contribution for Roth 401 (k) holders is made to a traditional 401 (k). Therefore, counterpart contributions are made before tax.
When an employer makes equivalent contributions to a traditional 401 (k) plan, the contributions go directly to that plan. However, when an employer makes matching contributions to a Roth 401 (k), they must be deposited in a separate traditional 401 (k), meaning that unlike Roth 401 (k) funds, the IRS will tax them when they withdraw them in retirement. For this reason, many employers choose not to offer a Roth 401 (k) plan option at all, as they consider that the additional administrative demands outweigh the benefits. Yes, your employer can make matching contributions on your designated Roth contributions.
However, your employer can only allocate your designated Roth contributions to your designated Roth account. Your employer must allocate any contribution to match the Roth contributions designated in a pre-tax account, as well as matching contributions in traditional pre-tax elective contributions. See P&As on Reinvesting Designated Roth Contributions for additional rules for transferring qualified and unqualified distributions from designated Roth accounts. This special recovery rule does not apply when you transfer the distribution to another designated Roth account or your Roth IRA, but it does apply to a subsequent distribution from the extended account or IRA within the taxable 5-year period.
If your plan will charge you high rates when you are no longer with the company or you don't like investment options, move it to the retirement plan of your next job or to an IRA. If your plan allows for hardship account distributions, you may choose to receive a hardship distribution from your designated Roth account. In addition, excess contributions that are distributed to avoid an ADP failure also do not begin the taxable 5-year participation period. The plan can specify which of these amounts are eligible for Roth transfers within the plan and how often these transfers can be made.
The following table shows contribution and income limits, as well as income phase-out ranges by tax return status. Contributions in a 401 (k) plan are pre-tax, meaning you can fully deduct them for the year you make them, then you'll pay tax on contributions and growth when you make distributions. When you transfer a distribution from a designated Roth account to a Roth IRA, the period in which the transferred funds were in the designated Roth account does not count toward the taxable 5-year period in determining qualifying distributions from the Roth IRA. Employers can only allocate designated Roth contributions and cumulative contributions (and earnings from these contributions) to designated Roth accounts.
However, you cannot maximize both your Roth account and your traditional Individual Retirement Account (IRA) in the same year. If the plan has traditional pre-tax elective contributions and designated Roth contributions, the plan must indicate how the employer will allocate its automatic contributions between pre-tax elective contributions and designated Roth contributions. A designated Roth account is a separate account in a 401 (k), 403 (b) or 457 (b) government plan that holds designated Roth contributions. .