Separate Accounting For Roth 401(k) Funds in Brokerage

[EPCRSGuru]

We are adding a Roth provision effective 1/1/17. We currently offer a brokerage window in addition to a broad lineup of mutual funds and we are debating internally about whether we should allow Roth funds to be invested in brokerage. The issue involves the ability to account separately for the Roth contributions and associated investment earnings/losses. Does anyone have experience with this?

[401king]

How are you tracking the various sources currently? i.e. How do you separate gains for deferrals from match?

[Mr Bagwell]

Yes, I have dealt with this before.

The Roth in a brokerage account is not too big of a deal, especially when you are able to start it in it's own account.

The Roth and Pretax in the same account isn't that big of a deal either, the earnings are prorated across the money sources. I'm not against this approach, but at some point the participant is going to want to "play" with the Roth portion to make more money. And the all together approach with earnings proration blows the scenario up because the participant will say that fund x is Roth and fund Y is pretax..... ugh......

Separately is the way to go if you can.

[Jim Chad]

Agree!

[Tom Poje]

if it helps, straight from the "horses mouth"

According to the IRS Website found at:
https://www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts
the 4th question under General Questions
Does separate account refer to the actual funding vehicle or does it refer to separate accounting within the plan's trust?

Under IRC Section 402A, the separate account requirement can be satisfied by any means by which an employer can separately and accurately track a participant’s designated Roth contributions, along with corresponding gains and losses.