Roth 401(k) / Self-Directed Brokerage Accounts

[Gruegen]

The separate accounting requirement of the Final Roth 401(k) regulations state that "gains, losses and other credits or charges must be separately allocated on a reasonable and consistent basis to the designated Roth account and other accounts under the plan." (Treas Reg 1.401(k)-1(f)(2))

Further, the proposed Roth regulations warn that "any transaction or accounting methodology involving an employee's designated Roth account and any other accounts under the plan that has the effect of directly or indirectly transferring value from another account into the designated Roth account" would violate the separate accounting requirement. (Proposed 1.402A-1, Q&A-13)

To the extent that a plan permits designated Roth 401(k) contributions, and to the extent that the plan has self-directed brokerage accounts (SDBA's) in which designated Roth 401(k) contributions are being invested, is it necessary to have 2 SDBA's? Or can both regular 401(k) and Roth 401(k) be invested in the same SDBA assuming that the plan has a "reasonable and consistent" method of allocating investement gains/losses to these sources?

During the ASPPA webcast on February 22 regarding Roth 401(k), the speaker made a point to indicate that 2 SDBA's were not required. However, during a recent ALI-ABA webcast, a speaker from the IRS seemed to indicate that 2 SDBA's were required.

I am trying to find out how recordkeepers in the industry are handling this issue. Any responses are greatly appreciated.

[Archimage]

I think the IRS speaker either misunderstood the context of the question or has a different definition of SDBA in mind. I don't think there are many in the industry that are doing this. It would be very difficult in a daily environment to have separate trust accounts for Roth contributions versus everything else. I don't see where it says that the assets must be segregated, only separate accounting requirements.

[Bird]

I agree. Separate accounting means that you have to be able to identify which part of a physical account is the Roth part, but you don't have to have physically separate accounts - at least I hope not. I think they made it clear that you can't send all the gains to the Roth account...