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FAQs The NYC Deferred Compensation Plan > About the Roth 401(k)
	General Questions What is the Roth 401(k)? What is the difference between a Roth IRA and a Roth 401(k)? If an employee is within five years of retirement, is the Roth feature a benefit to them? Why would an employee choose to contribute to the 401(k) Plan using both pre-tax contributions and Roth after-tax contributions? Will an employee’s traditional and Roth contributions to the 401(k) Plan be included on the same quarterly statement? About Making Contributions Can you make Roth contributions to the Roth 401(k) Plan after age 70 ½? Can Roth contributions made to the Roth 401(k) Plan, excluding earnings, be withdrawn at any time without penalty or do the five year and age 59 ½ rules still apply? If a Roth contribution is made in 2006 (even if it’s the last pay of the year), will the contribution receive credit for the entire year? If you make Roth contributions to the Plan, what is the maximum you can borrow? If an employee is contributing the maximum amount to their 401(k) Plan with pre-tax contributions, are they still eligible to contribute using Roth contributions? About Distribution What is a Qualified Distribution? Are Roth minimum distributions calculated the same as traditional minimum distributions? Can Roth contributions be rolled over? If so, what are the time requirements necessary to make that rollover qualified? If you are qualified to withdraw at age 59 ½ and also have contributed for 5 years, are you only eligible to withdraw the amount of money contributed in the first year (since you have only contributed for five years)? If distributions are penalized before the five-year anniversary, does this include the after-tax dollars that are contributed? Does the 10% penalty include total distribution or only the interest? What is the Roth 401(k)? The Roth 401(k) is a new voluntary contribution provision to help employees save more for retirement. It combines the savings and investment features of a pre-tax 401(k) Plan with the tax-free distribution of a Roth IRA. Roth 401(k) contributions are made with after-tax dollars, so initially they won't reduce a worker's tax bill. However, the money will grow tax-deferred, and all Qualified Distributions will be tax-free. In these respects, they are like Roth IRAs. Additionally, Roth contributions provide the potential to pay less in future income taxes in retirement. Back to Top What is the difference between a Roth IRA and a Roth 401(k)? There are several differences between Roth IRAs and Roth 401(k)s. Some basic differences include: Roth 401(k) contributions are accomplished only through payroll deduction. Generally, Roth IRA contributions are accomplished by personal contribution. Larger contributions are allowed in the 401(k). In 2006, a member under age 50 can contribute up to $15,000 of Roth after-tax contributions. Members age 50 and older can contribute up to $20,000. Roth IRA contributions are limited to $4,000 for persons under age 50 and $5,000 for persons age 50 and older. Some wage earners are prohibited from participating in a Roth IRA. Individual taxpayers with incomes in excess of $110,000 or joint income tax filers with income of $160,000 or more are restricted from contributing to a Roth IRA. There are no income-related restrictions that would prohibit an employee from contributing to a Roth 401(k). Rollovers – Roth IRA’s cannot be rolled into a Roth 401(k); however, a Roth 401(k) can be rolled into a Roth IRA or another qualified plan that accounts for the Roth contributions separately. Back to Top If an employee is within five years of retirement, is the Roth Feature a benefit to them? This would be a personal decision and would be based on a number of factors. The education materials and calculator tools may assist you in making that assessment. It is important to remember that members are not required to begin withdrawals immediately upon termination of employment or retirement. Benefits can be delayed to a later date, which may enable the individual to satisfy the five-year rule. Back to Top Why would an employee choose to contribute to the 401(k) Plan using both pre-tax contributions and Roth after-tax contributions? Individuals may choose to contribute to the 401(k) Plan with both traditional and Roth contributions in order to create additional tax diversification among their contributions. Back to Top Will an employee’s traditional and Roth contributions to the 401(k) Plan be included on the same quarterly statement? Yes, all contributions made to the 401(k)Plan will be included on the quarterly statement. Back to Top Can you make Roth contributions to the Roth 401(k) Plan after age 70 ½? Employees over age 70 ½ who are still working in a position that is eligible to participate in the 401(k) Plan can continue to make Roth contributions to the Plan. Back to Top Can Roth contributions made to the Roth 401(k) Plan, excluding earnings, be withdrawn at any time without penalty or do the five year and age 59 ½ rules still apply? Unlike the Roth IRA, participants are not allowed to withdraw their “basis” or Roth 401(k) contributions from the Plan while still employed and eligible to participate in the Plan. For nonqualified distributions (e.g., made prior to age 59 1/2, disability, death and held less than 5 years) there will be part contributions and part earnings distributed and the earnings will be subject to applicable penalties for early distribution, but the contributions would not be. Back to Top If a Roth contribution is made in 2006 (even if it’s the last pay of the year), will the contribution receive credit for the entire year? Yes. Anytime a Roth contribution is made during the year, the five-year time clock begins running effective the first day of that calendar year. What benefits would there be to an employee to stop contributing to a Roth IRA and begin contributing to the 401(k) Plan using Roth contributions? Individual circumstances need to be factored in, though generally, there are no income limits and the contribution limits are much higher for the 401(k) plan. To maximize savings, contributions to both can continue as long as the Roth IRA eligibility is met. Back to Top If you make Roth contributions to the Plan, what is the maximum you can borrow? Roth contributions to the 401(k) Plan will not be eligible for loans. Back to Top If an employee is contributing the maximum amount to their 401(k) Plan with pre-tax contributions, are they still eligible to contribute using Roth contributions? The contribution limit for the Plan in 2006 is $15,000. Additionally, if an individual is 50 years of age or older before December 31, 2006, they are eligible to contribute an extra $5,000 to the Plan for a total of $20,000. The contribution limit is a combined limit for traditional and Roth contributions. Therefore, if an employee’s contribution limit for the year is $15,000, and they contribute $15,000 in traditional contributions, they will not be able to contribute any additional dollars using Roth. However, if an employee’s contribution limit for the year is $15,000, and they contribute $10,000 in traditional contributions, they will be able to contribute up to $5,000 dollars in Roth dollars. Back to Top What is a Qualified Distribution? A “Qualified” Distribution means that the distribution will have a tax-free status. A qualified distribution requires that an employee wait five tax years after making their first Roth contribution before taking a distribution, and the distribution must occur after they have reached age 59 ½ or older, or they become disabled or deceased. Back to Top Are Roth minimum distributions calculated the same as traditional minimal distributions? The method used to calculate the required minimum distributions for Plan members who are age 70 ½ and older is the same regardless of whether the accumulations are traditional pre-tax/tax-deferred distributions, Roth after-tax/tax-free distributions, or accumulations that include both traditional pre-tax and Roth after-tax contributions and earnings. Back to Top Can Roth contributions be rolled over? If so, what are the time requirements necessary to make that rollover qualified? Yes, Roth accounts may be rolled over, but only to a Roth IRA or to another qualified 401(k) plan that offers Roth contributions and accepts those rollovers. Back to Top If you are qualified to withdraw at age 59 ½ and also have contributed for 5 years, are you only eligible to withdraw the amount of money contributed in the first year (since you have only contributed for five years)? No. The first contribution starts the 5-year clock. Once you have met the qualification requirements, your entire Roth Account Balance is then considered “qualified” (e.g., both the contributions AND earnings would be tax-free for voluntary distributions). Back to Top If distributions are penalized before the five-year anniversary, does this include the after-tax dollars that are contributed? Does the 10% penalty include total distribution or only the interest? Only the taxable amounts (non-qualified earnings) would be taxable and subject to any appropriate penalties; the contributions are always tax-free. Back to Top

Employee Assistance Programs (EAPs)
EAPs are staffed by professional counselors who can help employees and their eligible dependents handle problems in areas such as stress, alcoholism, drug abuse, mental health, and family difficulties.

Learn More

	PICA Program
	NYC Employee Blood Program
	Collective Bargaining Agreements
	OPA Web site
	NYC.gov