An Analysis of the New Roth 401(k)/403(b) Plans

Document Type



Published by The American Institute of Certified Public Accountants in The Tax Adviser, volume 39 issue 8, 2008.

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American Institute of Certified Public Accountants

Publication Source

The Tax Adviser


The Roth 401(k)/403(b) provisions, effective for tax years beginning on or after Jan 1, 2006, combine characteristics of Roth IRA and traditional 401(k)/403(b) plans in one retirement program. Under the new provisions, employee contributions to a Roth 401(k) plan can be made in the same dollar amount as under a traditional 401(k)/403(b) plan. The new provisions were set to expire for tax years beginning after 2010; however, the Pension Protection Act of 2006, P.L. 109-280 (PPA 2006), repealed the sunset provision as it applied to pensions and IRAs, thereby making the Roth 401(k) provisions permanent. The most significant benefit of a designated Roth account is that qualified distributions are not includible in gross income. Many employers do not currently offer their employees the option to invest in a Roth 401(k). Increasing the rate of return from 8% to 12% significantly increases the value of the Roth 401(k) alternative as compared with the traditional 401(k)/403(b) alternative.