For years, workers who chose a Roth 401(k) inside their workplace plan faced an odd mismatch: their money grew and came out tax-free, just like a Roth IRA, but the account still forced them to start withdrawing it at a certain age, unlike a Roth IRA. A federal law change closed that gap. A Roth 401(k), along with its 403(b) and governmental 457(b) counterparts, no longer requires the original account owner to take any withdrawals during their lifetime.
What Changed Under the SECURE 2.0 Act
Beginning with tax years starting in 2024, designated Roth accounts inside employer retirement plans were removed from the required minimum distribution rules that apply while the account owner is alive. Before the change, a Roth 401(k) owner who reached the plan’s required beginning age had to start pulling money out every year, exactly like someone with a traditional 401(k), even though the Roth withdrawals themselves were tax-free. That created an odd planning trap: money the owner didn’t need yet had to come out anyway, simply because it sat inside an employer plan rather than a Roth IRA.
The change puts designated Roth accounts on the same footing as Roth IRAs, which have never required lifetime withdrawals from the original owner. The IRS states plainly, in its frequently asked questions on retirement plan and IRA required minimum distributions, that the RMD rules do not apply to Roth IRAs or designated Roth accounts in a 401(k) or 403(b) while the owner is alive, though the rules still apply once the account passes to a beneficiary.
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How a Designated Roth Account Works Inside a 401(k)
A designated Roth account is a separate account inside a 401(k), 403(b), or governmental 457(b) plan, funded with after-tax salary deferrals rather than the pre-tax deferrals that go into a traditional 401(k) balance. Contributions are included in taxable income in the year they’re made, but qualified withdrawals, including all of the account’s investment earnings, come out entirely tax-free. A withdrawal qualifies once it happens at least five years after the year of the first Roth contribution to that account and the owner has reached age 59½, become disabled, or died, mirroring the qualification rules that govern a Roth IRA.
Not every workplace plan offers a designated Roth option; employers have to amend their plan documents to add it, and a SARSEP or SIMPLE IRA plan cannot offer one at all. Where it is offered, the account sits alongside the traditional pre-tax portion of the same 401(k), and a worker can typically direct contributions to one, the other, or split between both, subject to the plan’s overall annual contribution limit.
Why the RMD Change Matters for Estate Planning
Before 2024, an owner with a large Roth 401(k) balance sometimes rolled it into a Roth IRA specifically to escape the lifetime RMD requirement, since Roth IRAs were already exempt. That extra step is no longer necessary purely to avoid forced withdrawals, though a rollover can still make sense for other reasons, such as consolidating accounts or gaining access to a wider range of investment choices, a comparison covered in the IRS’s overview of Roth IRAs. An owner who leaves the money in the Roth 401(k) can now let the entire balance continue growing tax-free for as long as they live, drawing on it only when they choose to, rather than on a schedule set by their age.
The change also simplifies planning for people who don’t need the income. A retiree with a healthy pension and Social Security benefit, for example, may prefer to leave Roth 401(k) money untouched so it keeps compounding tax-free for heirs, and the removal of the lifetime RMD requirement now lets that strategy work the same way inside an employer plan as it always has inside a Roth IRA.
What Still Applies to Beneficiaries
The relief only covers the original account owner. Once a designated Roth account or Roth IRA passes to a beneficiary, distribution rules kick back in, generally requiring the balance to be paid out within a set number of years depending on who inherits it and their relationship to the original owner. A surviving spouse, a minor child, a disabled or chronically ill beneficiary, and a beneficiary not much younger than the original owner each get different treatment under the rules, so the lifetime exemption an owner enjoys does not automatically extend to whoever inherits the account.
Checking Whether a Workplace Plan Offers the Option
Not every retiree with a 401(k) has a designated Roth account to begin with, since employers had to choose to add the feature and workers had to choose to direct contributions into it rather than the traditional pre-tax side of the plan. Anyone unsure which type of balance they’re holding can check a recent plan statement, which typically breaks out pre-tax and Roth balances separately, or contact the plan administrator directly. For workers still contributing, deciding how much to route into a Roth 401(k) versus a traditional 401(k) going forward is a separate question from the RMD rule change, since it depends mainly on whether the tax bracket paid today is expected to be lower than the one paid on future withdrawals.
This article was produced with AI assistance and reviewed by The Financial Wire editorial team.
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