KP401k and Roth Deferral Option Q & A Guild for Professional Pharmacists in Northern California January 17, 2020
1. What type of defined contribution plan are NCAL Guild Pharmacists eligible for?
a. This is the KP 401(k) plan which is a 401(k) plan which that participants the ability to make both pre-tax and Roth after-tax deferrals.
2. Is the Roth option a true Roth in tax terms?
a. Similar to an after-tax deferral, Roth deferrals are made to the plan on an after-tax basis (i.e. they are taxed prior to deposit into the retirement plan account).
3. Are all contributions made on an after tax basis?
a. Assuming we are just talking about Roth contributions. Yes, all Roth contributions are made to the plan on an after-tax basis.
4. Are all withdrawals made appropriately (age, vesting) tax-free?
a. Yes, assuming it’s been at least 5 years since your first Roth deferral to the plan and you are not withdrawing them prior to age 59.5; otherwise, any earnings on your Roth deferrals would be subject to taxation and potentially an “early withdrawal” penalty of 10%. The KP401K does not allow in-service withdrawal of Roth monies until age 59.5; therefore, the “Roth Age 59.5 Withdrawal” option offered under the plan is truly a tax-free withdrawal (assuming it’s been at least 5 years since the first Roth deferral to the plan).
The KP401K does allow participants to withdrawal Roth monies in qualifying hardship circumstances. Therefore, a participant under age 59.5 who takes a “Roth Hardship Withdrawal” from the plan would be subject to taxation and early withdrawal penalties (potentially) on any earnings attributable to the Roth contributions they are withdrawing from the plan (i.e. the Roth contributions themselves are not taxable).
5. Does the Roth option have Roth inheritability?
a. Yes
6. Does the match apply to the Roth? On the same basis as traditional 401K? (1.25% for everyone, plus 6% for post 2009 hires not on pension)?
a. Yes, the KP401K matches on both Pre-tax & Roth deferrals, and it applies to all eligible pharmacists.
7. If the match doesn't apply to the Roth then does this mean a pharmacist must have Roth and traditional 401K plans in order to get the match?
a. N/A (see answer to #5 above)
8. What are the contribution limits? Is the total $19,500 for both plans combined or each?
a. The IRC 402(g) limit applies to both Pre-tax & Roth deferrals combined.