Guidance for Roth Employer Contributions

Feb 29, 2024 | 401(k) Plans, 403(b) Plans

Guidance for Roth Employer Contributions

With the Secure 2.0 Act, you can now offer your participants in 401(k), 403(b) and 457(b) plans the option to treat their employer contributions (match and nonelective) as Roth contributions. 

Things to Consider if You’re a Plan Sponsor

This is an optional provision for plan sponsors. 

  • Even if you currently allow Roth deferrals, you are not required to offer Roth Employer contributions.
  • You can offer this option even if your plan does not offer Employee Roth deferrals.
  • An employee must irrevocably elect Roth treatment for matching and nonelective contributions before they are allocated to their plan account.
  • Participants must be allowed to make or change the Roth designation for their future employer contributions at least once each plan year.
  • These contributions must be maintained in a separate designated Roth account for Employer Matching contributions or Employer Nonelective contributions.
  • Designated Roth match and nonelective contributions are not considered compensation but are includable in the employee’s taxable income when made, even if the contribution is deemed to have been attributed to the prior tax year. Designated Employer Roth contributions are reported on Form 1099-R for the year the contributions are allocated to the Participant’s account. 
  • These contributions are not subject to FICA, FUTA, or federal income tax withholding. However, participants electing Roth treatment may need to adjust their tax withholding elections or make estimated payments to account for the tax due on these contributions. Sponsors may want to communicate this to their participants.
  • Only participants fully vested in matching or nonelective contributions when they are allocated can make a Roth designation for those contributions. This means that if there is a vesting schedule for employer contributions, the participant must have met the service to be fully vested before they can elect to have their employer contributions made on a Roth basis.
  • Minimum Distributions are not required from Roth accounts.
  • It does not appear that a separate 5-year waiting period for qualified distributions (you must also be age 59.5) is needed if the participant has already been making Roth deferrals to the Plan. 
  • You will want to confirm the capabilities of your current payroll provider and your plan recordkeeper as they must be able to account for these contributions separately for tracking and taxation purposes.
  • You will need to draft Administrative procedures and a Participant election form if you elect to offer Roth Employer contributions. 

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