Roth 401(k): All can contribute, regardless of income?

[Don Levit]

I read today that Roth 401(k) contributions are similar in concept to Roth IRA contributions, but they are not subject to the Roth IRA income-eligibility cap. Does this mean that there are no "discrimination" issues regarding the percentage of salary each participant contributes? I read through the IRS proposed regulations, and did not get any confirmation of this particular issue.

Don Levit

[mbozek]

Why would there be any discrimination issue since the contributions are made with after tax dollars? IRS cant impose rules that are not imposed by the statute. IRC 402A allows an employee to designate any amount of elective deferrals up to the maximum amount of elective deferrals permitted for the tax year as Roth 401k contributions.

[WDIK]

Why would there be any discrimination issue since the contributions are made with after tax dollars?.

First, if memory serves me correctly, voluntary (after-tax) contributions are subject to nondscimination (ACP) testing.

Second, Section 402A indicates that Roth contributions "shall be treated as an elective deferral for purposes of [that] chapter". Becasue of this, some opine that such contributions will be subject to the same testing and safe harbor exceptions as regular deferrals.

[Alf]

I think they are subject to the ADP test like 401(k) conts. They can't have a complete pass on testing like catch-ups.

[mbozek]

limitation of after tax contributions to retirement plans is a democratic concept - not a republican principle.

402A doesnt not have any provision for testing contributions - The statute specifically permits all or any portion of an elective contribution to be designated as a roth contribution. For non HCEs this means 15k plus catch up. For HCES it is the amount permitted by the ADP. The reason is obvious- all roth contributions are subject to income taxation which increases revenue.

[MWeddell]

I also understand that Roth 401(k) contributions are treated like elective deferrals for purposes of the ADP test.

[Guest rebeccapoore]

My question is about waitresses and bartenders. They don't get a check from the employer, but they have taxable income. Can they contribute from their tips in after-tax dollars? They haven't been able to contribute through pre-tax dollars because they had none, but does this enable them to contribute through after-tax dollars?

We have a couple of restaurants with tipped employees who want to contribute.

Thanks, Becky