Life and Death Planning for Retirement Benefits

Chapter 5: Roth Retirement Plans

259

An individual can contribute to a Roth 401(k) even if he is also a participant in other

retirement plans offered by the same or another employer; however, participation in another plan

may limit the amount that may be contributed (see “B”).

How much may be contributed.

The maximum amount that may be contributed to a

DRAC is whatever maximum amount of elective deferral contribution the participant may

make to his 401(k) plan for the year in question.

§ 402(g)(1)(B) .

The dollar limit for elective deferrals in 2006 and later years is $15,000, plus an additional

$5,000 “catch-up” contribution if the participant is 50 or older by the end of the year.

§ 402(g)(1)(B) , (C) .

Cost-of-living adjustments (COLAs) increase both the base amount

( § 402(g)(4) )

and the catch-up contribution

( § 414(v)(2)(C) )

after 2006. For 2009–2011, the base and

catch-up amounts are $16,500 and $5,500 respectively. Notice

2009-94 ,

2009-50 IRB 848; IR-

2010-108. Note the contrast with IRAs, where the “catchup contribution” for individuals over age

49 is not subject to a COLA.

¶ 5.3.03 .

To find each year’s maximum permitted contribution amount, see Ed Slott’s IRA Advisor

newsletter or Denise Appleby’s Quick Reference charts

( Appendix C )

The DRAC option does not increase the amount the participant may contribute to a plan

through elective deferrals. Rather, the participant may choose to put his total permitted elective

deferral contribution amount into a DRAC, or into a traditional 401(k) account, or partly into each.

For example, in 2010 an over-age-49 participant with sufficient compensation can (if permitted by

his plan) contribute $22,000 to his regular 401(k) account, or $22,000 to a DRAC; or he can send

part of his elective deferrals to a DRAC and part to a regular account, as long as the combined

total so contributed does not exceed $22,000.

The elective deferral limits apply to an individual based on all elective deferral plans he

participates in (with this or any other employer;

§ 402(g) )

; and

§ 415

also limits the amount that

may be contributed. These limits are beyond the scope of this book; see instead Chapter 27 of

The

Pension Answer Book

( Appendix C )

Election is irrevocable.

The election to have part of one’s compensation contributed to a

DRAC is irrevocable once the money has been contributed to the plan. Thus, a participant

cannot retroactively designate a DRAC contribution as a regular contribution or vice versa.

Reg.

§ 1.401(k)-1(f)(1)(i) .

This is unlike a Roth IRA, contributions to which can be

withdrawn or recharacterized for a certain period of time, if the contributor changes his

mind; see

¶ 5.6 .

The irrevocability of the DRAC decision will make planning more

difficult; a participant might prefer to wait until the end of the year (when he has a better

idea of his income and tax situation) to decide whether he wants a tax deduction now or

tax-free income later.

What may be contributed to a DRAC.

The ONLY contributions that can go into a DRAC

are: (1) certain rollovers from other DRACs (see

¶ 5.7.07 )

; (2) a participant’s post-2005

elective deferral contributions (Reg.

§ 1.401(k)-1(f)(3) ,

third sentence); and (beginning

9/28/10), rollovers of distributions from the employee’s “traditional” account in the same

retirement plan (see

¶ 5.7.11 )

. This means that: