A designated Roth account is a separate account inside an employer 401(k), 403(b), or governmental 457(b) plan that holds after-tax “designated Roth contributions,” and qualified withdrawals of both those contributions and their earnings can come out tax-free. It is the workplace-plan cousin of the Roth IRA, and it carries its own contribution limits, its own 5-year clock, and, since 2024, no lifetime required minimum distributions.
A designated Roth account is the Roth sub-account within a 401(k), 403(b), or governmental 457(b). You contribute after-tax dollars, up to the plan elective-deferral limit of $24,500 for 2026 (with catch-ups on top), and qualified distributions are tax-free. Unlike a Roth IRA, there is no income limit to participate. (Source: IRS Notice 2025-67.)
What is a designated Roth account?
A designated Roth account is a separate account in a 401(k), 403(b), or governmental 457(b) plan that holds designated Roth contributions, which are made after-tax and included in gross income when contributed rather than tax-deferred (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026). The plan must account for these contributions, and their gains and losses, separately from any pre-tax money.
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The statutory basis is Internal Revenue Code section 402A, which authorizes a “qualified Roth contribution program” letting an employee elect designated Roth contributions in lieu of, or alongside, ordinary pre-tax deferrals (Source: 26 U.S.C. 402A, 2026). Because the account lives inside a workplace plan, it is governed by that plan’s rules on eligibility, investment menu, and loans.
These accounts are available only in 401(k), 403(b), and governmental 457(b) plans. The IRS states that the law does not allow designated Roth contributions in SARSEP or SIMPLE IRA plans (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026). The federal Thrift Savings Plan (Roth TSP) is a 401(k)-type plan that functions the same way (Source: TSP.gov, 2026).
Is a designated Roth account the same as a Roth 401(k)?
A Roth 401(k) is one type of designated Roth account. “Designated Roth account” is the umbrella term the IRS uses for the after-tax Roth sub-account in any eligible employer plan, so a Roth 401(k), a Roth 403(b), and a governmental Roth 457(b) are all designated Roth accounts (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026).
The mechanics are identical across the three vehicles: after-tax employee contributions, separate recordkeeping required under IRC 402A, tax-free qualified distributions, and no income limit to participate. The plan type mainly changes who sponsors it, the investment menu, and certain plan-level features.
How does a designated Roth account differ from a Roth IRA?
A designated Roth account and a Roth IRA share the same tax goal, tax-free qualified withdrawals, but differ on income limits, contribution caps, distributions, and loans. The workplace account has no income limit and a higher contribution ceiling, while the Roth IRA treats nontaxable contributions as withdrawn first for nonqualified distributions (Source: IRS Ten Differences Between a Roth IRA and a Designated Roth Account, 2026).
| Feature | Designated Roth account (Roth 401(k)/403(b)/457(b)) | Roth IRA |
|---|---|---|
| Where it lives | Inside an employer plan | Individual account at a custodian |
| 2026 contribution limit | $24,500 elective deferral (shared with pre-tax) | $7,500 |
| Age 50+ catch-up (2026) | $8,000 (ages 60-63: $11,250) | $1,100 |
| Income (MAGI) limit | None | Phases out; e.g. single $153,000-$168,000 (2026) |
| Lifetime RMDs | None while owner is alive (starting 2024) | None while owner is alive |
| Early access to contributions | Pro-rata taxation of nonqualified withdrawals | Nonqualified distributions come out in order: nontaxable contributions first, then taxable earnings |
| First-time homebuyer exception | Does not apply | Applies |
| Loans | Yes, if the plan allows | No |
| Investment choices | As offered by the plan | Many, as long as not prohibited |
All figures above are 2026 amounts (Sources: IRS Notice 2025-67; IRS Ten Differences, 2026; 26 U.S.C. 402A, 2026). For the IRA-level decision between paying tax now or later, see the Q3 guide on Roth vs. traditional IRA.
What are the 2026 contribution limits for a designated Roth account?
For 2026, the employee elective-deferral limit for 401(k), 403(b), and governmental 457(b) plans is $24,500, up from $23,500 in 2025 (Source: IRS Notice 2025-67). This single cap is shared across pre-tax and designated Roth deferrals in the same plan, so a participant cannot exceed it by splitting contributions between the two.
Catch-up contributions stack on top of the base limit:
- Ages 50 and older: an extra $8,000 for 2026, for a total of $32,500 (Source: IRS Notice 2025-67).
- Ages 60, 61, 62, and 63: a higher SECURE 2.0 catch-up of $11,250 for 2026 instead of the standard $8,000 (Source: IRS Notice 2025-67).
By comparison, the 2026 IRA limit is $7,500 with a $1,100 catch-up (Source: IRS Notice 2025-67). The designated Roth account elective-deferral limit is higher than the IRA limit for the same year (Source: IRS Notice 2025-67). For the full schedule across account types, see the Q3 retirement contribution limits for 2026.
Are there income limits for a designated Roth account?
No. There is no income (MAGI) limit to contribute to a designated Roth account, which is one difference from a Roth IRA (Source: IRS Ten Differences Between a Roth IRA and a Designated Roth Account, 2026). A high earner who is phased out of direct Roth IRA contributions can still make designated Roth contributions through a workplace plan.
By contrast, Roth IRA eligibility phases out with income. For 2026 the phase-out range is $153,000 to $168,000 for single and head-of-household filers and $242,000 to $252,000 for married filing jointly (Source: IRS Notice 2025-67).
Can employers contribute Roth money, and who funds the account?
A designated Roth account is funded by employee elective deferrals designated as after-tax. Historically, employer matching and profit-sharing money went in pre-tax only. Section 604 of the SECURE 2.0 Act changed that: a plan may now let a participant designate an employer matching or nonelective contribution as Roth, if the plan permits and the employee is fully vested (Sources: SECURE 2.0 Act Section 604; IRS Notice 2024-2, Q&A L-1, 2024).
A designated Roth matching or nonelective contribution is includible in the individual’s gross income for the taxable year in which it is allocated to the account, and the plan applies separate accounting to it (Source: IRS Notice 2024-2, Q&A L-1 and L-2, 2024). The designation must be made no later than when the contribution is allocated and is irrevocable (Source: IRS Notice 2024-2, Q&A L-1, 2024). Whether a specific plan offers this feature depends on the plan document, so participants would check with their plan administrator.
What is the 5-year rule and when are distributions tax-free?
A distribution from a designated Roth account is tax-free only if it is a “qualified distribution,” which requires two things at once: the 5-taxable-year participation period is satisfied, and a triggering event has occurred (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026). Meet both, and the entire withdrawal, contributions plus earnings, comes out of gross income.
The triggering events are reaching age 59½, death, or disability (Source: 26 U.S.C. 402A(d)(2), 2026). The first-time homebuyer exception that applies to Roth IRAs does not apply to designated Roth accounts (Source: 26 U.S.C. 402A(d)(2), 2026).
How the 5-year clock works
The 5-taxable-year period begins on the first day of the taxable year for which you first made a designated Roth contribution to that plan (Source: 26 U.S.C. 402A(d)(2)(B), 2026). The clock is tracked separately for each designated Roth account. On a direct rollover from a designated Roth account under another plan, the recipient plan’s period begins on the first day of the year you first made designated Roth contributions to the earlier plan, if earlier (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026).
What happens with a nonqualified (early) distribution?
A nonqualified distribution is one taken before both the 5-year period and a triggering event are met. It is treated partly as a tax-free return of after-tax basis and partly as taxable earnings, allocated pro-rata (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026). This differs from a Roth IRA, where contributions are deemed withdrawn first.
The basis portion equals the distribution multiplied by (designated Roth contributions divided by the total designated Roth account balance) (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026). On top of ordinary tax on the earnings portion, a 10% additional tax on early distributions may apply to the includible amount taken before age 59½ unless an exception applies (Source: IRS Topic No. 558, 2026).
Are designated Roth accounts subject to RMDs?
No, not during the owner’s lifetime. Starting in 2024, designated Roth accounts in 401(k) and 403(b) plans are no longer subject to lifetime required minimum distributions, matching the long-standing Roth IRA rule (Source: IRS Retirement Topics – RMDs, 2026). Older IRS reference pages and many advisor articles still describe RMDs at age 72 or 73 for these accounts, which is now out of date.
The change came from Section 325 of the SECURE 2.0 Act (P.L. 117-328), effective for taxable years beginning after December 31, 2023. It amended IRC 402A so the section 401(a)(9) lifetime RMD rules do not apply to designated Roth accounts (Sources: 26 U.S.C. 402A, 2026; Congressional Research Service IF12750, 2026). Beneficiaries who inherit these accounts are still subject to RMD rules (Source: IRS Retirement Topics – RMDs, 2026). For how RMDs work on pre-tax balances, see the Q3 guide to required minimum distributions for 2026.
Can you roll a designated Roth account into a Roth IRA?
Yes. The IRS states that a distribution from a designated Roth account can be rolled over to another employer’s designated Roth account or into a Roth IRA, though not to a pre-tax account (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026). A Roth IRA has no lifetime required minimum distributions, one factor a saver may weigh alongside plan features and access needs (Source: IRS Retirement Topics – RMDs, 2026).
Because the distribution consists of both basis (the Roth contributions) and earnings, a rollover to another plan’s designated Roth account must be done through a direct rollover; if the distribution is paid to you and rolled over within 60 days, the basis portion can be rolled to a Roth IRA (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026).
An in-plan Roth rollover is a rollover of a non-Roth amount in your account to your designated Roth account in the same plan (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026). If your plan allows it, it can be done as a direct rollover, and in-plan Roth rollovers of amounts that are not otherwise distributable must be done by direct rollover (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026). An in-plan Roth rollover cannot be recharacterized, and the IRS also lists recharacterization of rolled-over amounts as “not allowed” for designated Roth accounts (Sources: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026; IRS Ten Differences Between a Roth IRA and a Designated Roth Account, 2026). Whether an in-plan Roth rollover makes sense in a given case is one factor to weigh with a qualified professional; the Q3 overview of Roth conversions explains the general mechanics.
Which account fits a given situation?
The choice between a designated Roth account and other savings is a pay-tax-now versus pay-tax-later question, weighed against contribution capacity and access needs. Factors to weigh include the designated Roth account’s higher contribution limit and absence of income caps, and the Roth IRA’s ordering rule that treats nontaxable contributions as withdrawn first along with investment choices listed as “many as long as not prohibited” (Source: IRS Ten Differences, 2026).
Because designated Roth withdrawals are generally tax-free, they can also affect other retirement thresholds that depend on taxable income. Related planning topics include the Social Security tax torpedo and Medicare IRMAA brackets for 2026. The right mix depends on individual circumstances, current and expected future tax rates, and plan features.
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Q3 Advisors is a registered investment adviser focused on retirement tax planning. This article is educational and is not advice; for guidance on your own circumstances, consult a qualified tax or financial professional.
Frequently asked questions
What is the difference between a Roth IRA and a designated Roth account?
Both offer tax-free qualified withdrawals, but a designated Roth account lives inside an employer plan with no income limit and a higher 2026 limit of $24,500 versus $7,500 for a Roth IRA (Source: IRS Notice 2025-67). A Roth IRA treats nontaxable contributions as withdrawn first, while the designated Roth account uses pro-rata taxation for nonqualified withdrawals (Source: IRS Ten Differences, 2026).
Is a designated Roth account the same as a Roth 401(k)?
A Roth 401(k) is one kind of designated Roth account. The term is the IRS umbrella label for the after-tax Roth sub-account in a 401(k), 403(b), or governmental 457(b) plan, so a Roth 401(k), Roth 403(b), and Roth 457(b) are all designated Roth accounts with the same core rules (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026).
What is a designated Roth 401(k) account?
It is the separate after-tax account inside a 401(k) plan that holds designated Roth contributions, which are included in gross income when made (Source: 26 U.S.C. 402A, 2026). Qualified distributions of contributions and earnings are tax-free, there is no income limit to participate, and the 2026 elective-deferral limit is $24,500 shared with any pre-tax deferrals (Source: IRS Notice 2025-67).
Are designated Roth accounts subject to RMDs?
No, not during the owner’s lifetime. Beginning in 2024, SECURE 2.0 eliminated lifetime required minimum distributions from designated Roth accounts in 401(k) and 403(b) plans (Source: IRS Retirement Topics – RMDs, 2026). Many older pages still list RMDs at age 72 or 73, which is outdated. Beneficiaries who inherit these accounts remain subject to RMD rules (Source: IRS Retirement Topics – RMDs, 2026).
What is the 5-year rule for a designated Roth account?
The 5-taxable-year rule requires that at least five tax years pass, starting the first day of the year of your first designated Roth contribution to that plan, before earnings can be withdrawn tax-free (Source: 26 U.S.C. 402A(d)(2)(B), 2026). The clock is tracked per plan and does not carry over from a Roth IRA. A qualified distribution also requires a triggering event.
Can you withdraw from a designated Roth account?
Yes, subject to plan rules. A qualified distribution (5-year period met plus age 59½, death, or disability) is fully tax-free (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026). A nonqualified withdrawal is taxed pro-rata between contributions and earnings, and a 10% additional tax may apply to the taxable portion before age 59½ unless an exception applies (Source: IRS Topic No. 558, 2026).
What are the contribution limits for a designated Roth account?
For 2026, the employee elective-deferral limit is $24,500, shared across pre-tax and designated Roth deferrals in the same plan, so splitting between the two does not raise the ceiling (Source: IRS Notice 2025-67). Savers age 50 and older may add an $8,000 catch-up, while those ages 60 to 63 may add $11,250 instead under SECURE 2.0 (Source: IRS Notice 2025-67).
Can you roll a designated Roth account into a Roth IRA?
Yes. The IRS states a distribution from a designated Roth account can be rolled over to another employer’s designated Roth account or into a Roth IRA (Source: IRS Retirement Plans FAQs on Designated Roth Accounts, 2026). A rollover to another plan’s designated Roth account must be a direct rollover; if paid to you first, the basis portion can go to a Roth IRA within 60 days (Source: same FAQ, 2026).
Sources
IRS, Retirement Plans FAQs on Designated Roth Accounts: https://www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts
IRS, Ten Differences Between a Roth IRA and a Designated Roth Account: https://www.irs.gov/retirement-plans/ten-differences-between-a-roth-ira-and-a-designated-roth-account
IRS, Notice 2025-67, 2026 Amounts Relating to Retirement Plans and IRAs: https://www.irs.gov/pub/irs-drop/n-25-67.pdf
IRS newsroom, 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500: https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500
IRS, Retirement Topics – Required Minimum Distributions (RMDs): https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
IRS, Topic No. 558, Additional Tax on Early Distributions: https://www.irs.gov/taxtopics/tc558
26 U.S.C. 402A (Cornell LII): https://www.law.cornell.edu/uscode/text/26/402A
IRS, Notice 2024-2 (guidance on SECURE 2.0 Act provisions, including Section 604): https://www.irs.gov/pub/irs-drop/n-24-02.pdf
SECURE 2.0 Act of 2022, Section 604 (Division T of P.L. 117-328): https://www.congress.gov/bill/117th-congress/house-bill/2617/text
Congressional Research Service, IF12750, RMD Rules for Original Owners: https://www.congress.gov/crs-product/IF12750
Thrift Savings Plan, Traditional and Roth Contributions: https://www.tsp.gov/making-contributions/traditional-and-roth-contributions/
