401k and Roth401k

[Guest viterh]

Even the company plan administrator couldn't answer this question from a legal standpoint. Am contributing to both a 401k and a Roth 401k simultaneously via a PERCENTAGE of fluctuating commission based wages, (not a fixed dollar amount), at the same employer. The 401k contribution is BEFORE tax and the Roth 401k is AFTER tax, BUT IS THE ROTH 401K CONTRIBUTION BASED ON THE AFTER TAX AMOUNT ONLY, OR THE AFTER TAX AMOUNT PLUS THE 401K CONTRIBUTION AMOUNT???

Example:

GROSS = $2000 401K 10% 401K CONTRIBUTION = $200 TAXES = $400

ROTH 401K 5% OF A)$1600 0R B)$1400 ???????

Since the Roth 401k is new, no one seems to have addressed this situation, and I would think this would be a matter of Roth 401k regulations, not plan administrator discretion. someone HELP!!!!

[QDROphile]

Quite the contrary. It is a matter of plan administration and communication, not law. Your election could be in terms of the Gross Domestic Product. The formula simply produces an amount of deferral and can have whatever elements and meanings that the plan or plan administrator assigns. Of course, it would be helpful if the person making the election understood the terms and the effect of the election that uses the terms. Always carefully check the plan document to see what it says. Start with the definition of compensation.

[Guest viterh]

Quite the contrary. It is a matter of plan administration and communication, not law. Your election could be in terms of the Gross Domestic Product. The formula simply produces an amount of deferral and can have whatever elements and meanings that the plan or plan administrator assigns. Of course, it would be helpful if the person making the election understood the terms and the effect of the election that uses the terms. Always carefully check the plan document to see what it says. Start with the definition of compensation.

[Guest viterh]

Quite the contrary. It is a matter of plan administration and communication, not law. Your election could be in terms of the Gross Domestic Product. The formula simply produces an amount of deferral and can have whatever elements and meanings that the plan or plan administrator assigns. Of course, it would be helpful if the person making the election understood the terms and the effect of the election that uses the terms. Always carefully check the plan document to see what it says. Start with the definition of compensation.

Thanks for the info...will request plan documentation. From whence did your response come...you seem to be quite knowledgable of this situation???

[Bird]

You're overthinking this, and have probably confused your plan administrator. I know I couldn't begin to understand this:

Example:

GROSS = $2000 401K 10% 401K CONTRIBUTION = $200 TAXES = $400

ROTH 401K 5% OF A)$1600 0R B)$1400 ???????

If your gross is $2000, and if your plan permits you to elect whatever percentage you want from your commissions, which it almost certainly does, and you have elected 10% for regular 401(k) deferrals and 5% for Roth, it's simply:

401(k): 2000*10%=200

Roth: 2000*5%=100

[QDROphile]

Bird is most likeley correct. It is too difficult to be using adjusted numbers because they move around, as you have demonstrated. Also, the person who makes the election will find it difficult to predict the outcome. The most important factor for design is that the participant can make an election that produces the intended result.

It would also be nice if the plan administrator had a clue about what was going on, since the adminstraor has to impelement the instructions. Does your administrator drive at night with headlights off?

[RCK]

Any plan should define how the elections are made and what earnings they are applied to. And then the payroll system has to implement those definitions.

And at a practical level even though there is a sequence to the deductions, this does NOT override the definitions. So for example say that you are paid 100% on commission, and you have child support and a direct deposit to your credit union for mortgage and 401(k) and Roth (in that order). So your commission drops from the regular $10,000 per pay period to $1,000, the child support and mortgage eat that all up and there are no funds available for your $500 401(k) (5% of gross).

And I don't want to talk about what happens then.