Qualified Roth Contribution Program(p18)

Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income.

Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year ($16,500 for 2010 and 2011, $22,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions.

Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including:

• The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals)—$16,500 for 2010 (same for 2011), with an additional $5,500 if age 50 or over (same for 2011),
• Determining the maximum employee and employer annual contributions—the lesser of 100% of compensation or $49,000 for 2010 (same for 2011) and subject to cost-of-living adjustment thereafter,
• Nondiscrimination testing,
• Required distributions, and
• Elective deferrals not taken into account for purposes of deduction limits.

A qualified distribution is a distribution that is made after the employee's nonexclusion period and:

• On or after the employee attains age  
  591/2,
• On account of the employee's being disabled, or
• On or after the employee's death.

An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years.

• The first tax year in which the employee made a designated Roth contribution to the plan, or
• If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account.

Since 2006 was the first year an employee could make designated Roth contributions, the earliest a qualified distribution can be made is January 1, 2011.

Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I.R.B. 872, available at www.irs.gov/irb/2010-51_IRB/ar11.html A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. Rollover amounts do not apply toward the annual deferral limit.

You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. See the Form W-2 and 1099-R instructions for detailed information.