401K Financial Planning

Born in Bost asked:

Our company started a Roth 401K last year. For various reasons, the full contributions were lump-summed into the 401K in early January of this year. I (and some other employees) use the Schwab “Personal Choice” option that lets us have self-directed brokerage accounts.

I assumed that the Roth contribution would be put into a separate account from the pre-existing traditional 401K funds, but this is not the case - they are in the same Schwab account. Upon inquiry, our 401K administrator told us that this was the proper way to do it, and that they would “track” the Roth 401K money at the back end. This seems very awkward to me (interest on interest, transfers, dividends, commissions and so forth), but they insist this is the correct method. I found the IRS regs on Roth 401Ks, and they refer to both a “separate account” and a “separate accounting requirement.”

Is our 401K adminstrator doing this correctly?


Question posted courtesy of: Roy