Employer Sponsored Roth IRA

[Guest J Samuelson]

I have a client who set up a Roth IRA for his employees where he contributes $10 per pay period and the employee contributes $10 per pay period. Should the whole $20 be added into wages for income tax purposes (with social security, medicare, federal and state income taxes)? The client thinks that his $10 share should be a deduction for income taxes but then when would the taxes be paid?

[Guest ezollars]

While it would be nice to have such a provision in the law, it won't work. The money put into a Roth IRA by the employer is taxable compensation to the employee. Remind your client that the default is that everything provided to the employee is taxable income, and only items explicitly excluded under the IRC will not be taxable.

The only options for an employer funding an IRA-style account with pretax dollars are under SEP and SIMPLE-IRA plans (which have to follow additional rules for coverage, etc.). Neither of those plans support a Roth IRA and I don't expect to see one do so in the future. As you note, granting a tax benefit up front goes against the whole purpose of the Roth IRA.

This is a case where you have to ask the client for the source of his information--most likely it's the infamous "somebody" who told one of his acquaintences about this. When you try to run it down to a binding authority, you'll find the whole support will evaporate.