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403(b) and Roths


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Hi all, I have a 403(b) sponsor who wants to limit employee deferral elections to either Roth or traditonal 403(b) but not both. So for instance, if I wanted to contribute 10% of papy and have half be traditional deferral and half be ROTH, I couldn't do it. Does anyone see a problem with this?

Thansk in advance for any help you can give me.

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arguably no. at least that doesn't appear to be the intent, based on the IRS website's Q and A.

http://www.irs.gov/Retirement-Plans/Retire...oth-Accounts#17

Designated Roth Contribution #15

If an employer offers designated Roth contributions to one participant in a 403(b) plan, must the employer offer them to all other participants in the plan?

Yes. Under the universal availability requirement of §403(b)(12), if any employee is given the opportunity to designate §403(b) elective deferrals as designated Roth contributions, then all employees must be given that right.

based on your statement, someone who makes regular deferrals could make Roth deferrals, and that would seem to violate the universal requirement.

403b provider: well we offer both, you just can't choose both.

#11 Can a plan offer only designated Roth contributions?

No, in order to provide for designated Roth contributions, a plan must also offer traditional, pre-tax elective contributions.

403b provider: but we don't just offer Roth, we have both, you can't chose both at the same time.

#2

Can I make both pre-tax elective and designated Roth contributions in the same year?

Yes, you can contribute to both a designated Roth account and a traditional, pre-tax account in the same year in any proportion you choose.

your 403b sponsor: no you can't. it is either one or the other.

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I think what this is saying is that you must be given the opportunity to switch from Roth to pre-tax or vice versa. But the regulations do not require a plan to allow a "split" deferral (you must offer a pre-tax in order to offer a Roth, but you don't have to allow any specific deferral amount to be split) - so for a given deferral, the plan may require it to be all Roth or all pre-tax. That's a plan design issue. You could likely defer as Roth for 1/2 of the year, then switch to pre-tax for the other half, or vice versa, and accomplish the same result, if your compensation pattern is consistent and depending upon when or how often you can make changes.

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I think what this is saying is that you must be given the opportunity to switch from Roth to pre-tax or vice versa. But the regulations do not require a plan to allow a "split" deferral (you must offer a pre-tax in order to offer a Roth, but you don't have to allow any specific deferral amount to be split) - so for a given deferral, the plan may require it to be all Roth or all pre-tax. That's a plan design issue. You could likely defer as Roth for 1/2 of the year, then switch to pre-tax for the other half, or vice versa, and accomplish the same result, if your compensation pattern is consistent and depending upon when or how often you can make changes.

Arguably, you must offer both at the same time. Nothing in the rules Poje just quoted stated "subject to the terms of the plan". It seems to imply the plans must offer the participant to designate "any proportion". Technically, it's a pre-tax deferral before anything else. All you are doing is designating a portion of it as a Roth Contribution; hence the term "Designated Roth Contribution". The question is whether the plan can say "if you choose to make such a designation, then you must designate the entire amount". I don't believe you can based on Item #2 in Poje's post.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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This issue has been debated before, and mostly it is just an "agree to disagree" type of thing. FWIW, not that he's always right, Sal's book discusses this issue, and his conclusion is that a split election isn't required. See page 11.654 of current EOB.

Having said that, I think I've only ever seen (or perhaps noticed) a couple of plans that didn't allow the split election.

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If the plan only allowed deferral changes on the first day of the plan year, then an employee who wishes to defer will only have one deferral type available for that year. This gets closer to the edge. Any employee who elects to defer pre-tax thus does not also have a Roth option for that year. Any employee electing to defer Roth thus has no pre-tax option for the year. Not that this changes anything, just something to mull over.

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