O-1 Q: Are my designated Roth contributions included in the 401(k) plan annual nondiscrimination testing?

A: Yes, designated Roth contributions are treated the same as traditional, pre-tax elective contributions when performing annual nondiscrimination testing.

O-2 Q: If I am is required to take a corrective distribution from my 401(k) plan because the plan failed the ADP nondiscrimination test, can I take some or all of the corrective distribution from my designated Roth account? -TOP

A: Yes, a plan can provide that a highly compensated employee (HCE), as defined in Code Section 414(q), with both traditional, pre-tax elective contributions and designated Roth contributions during a year may elect to attribute excess contributions to pre-tax elective or designated Roth contributions. The plan does not have to provide this option and may provide for correction without permitting an HCE to make this election.

A distribution of excess contributions is not includible in gross income if it is a distribution of designated Roth contributions. However, the income allocable to a corrective distribution of excess contributions that are designated Roth contributions is includible in gross income in the same manner as income allocable to a corrective distribution of excess contributions that are pre-tax elective contributions. The final Roth 401(k) regulations also provide a similar rule under the correction methods that a plan may use if it fails to satisfy the actual contribution percentage test.

O-3 Q: Are designated Roth accounts included when determining whether a plan is top-heavy -TOP

A: Yes, they are treated just like other elective deferral accounts and must be included when calculating the top-heavy ratio each year.