401k ROTH deferral, W2, FICA/Medicare tax

[tertue]

OK...I just want to make sure I understand the 401k ROTH deferral as far as the FICA/Medicare taxing and filling out the W2

Example: An employee defers $10k to ROTH in a 401k (we're dealing with a C Corp). The employee portion of the FICA / MEDICARE would be 7.65% or $765, therefore only $9,235 is transferred to the ROTH account. The employER must also pay it's portion of the fica/medicare or $765. Am I correct thus far?

What and where would the ROTH portion and taxes for on the W2?

[QDROphile]

Your interpretation is not necessarily the correct application of a Roth deferral election. I would guess that most plans apply the amount elected the same way as regular deferrals with respect to FICA -- the employee portion is taken from other compensation. Check the plan document or communications about withholding. I am sure whoever decided to add the feature considered all of the implications and communicated clearly to participants about the effects of the elections.

[masteff]

Example: An employee defers $10k to ROTH in a 401k (we're dealing with a C Corp). The employee portion of the FICA / MEDICARE would be 7.65% or $765, therefore only $9,235 is transferred to the ROTH account. The employER must also pay it's portion of the fica/medicare or $765. Am I correct thus far?

You example fails to state the gross amount of pay that you're starting from. If you're starting from sufficiently greater than $10K, then $10K would go into the Roth account and (as QDRO noted above) the taxes would come from the remainder of the paycheck. If you're starting from $10K and the person elected 100% Roth deferral, then you'd first take out taxes and deposit the remainer into the Roth account; thus you cannot truly defer 100% as taxes and other deductions (health ins, etc) need to be allowed for.

Oh, and you're also forgetting federal and state income tax withholding... Roth deferrals are subject to withholding.

As for W-2, you'd report the Roth deferrals in box 12 with code AA.

[tertue]

OK...let's take 2 scenerios:

1. Employee grosses $11k during the quarter (paid quarterly) and decides to defer $10k. Would $10k be transferred to the ROTH account and the taxes be taken out of the remainder $1k? What amount would go on the W2 for the deferral - would it be $10k or $10k minus taxes paid by employee?

2. Employee grosses $10k for the quarter and wants to defer all into his ROTH account. Are you saying that taxes would first need to be deducted from the $10k and the remainder would go into his ROTH account? What amount would go on the W2 for the ROTH deferral - would it be the gross or gross minus the taxes?

[masteff]

Scenario 1 - you'd put $10K into his Roth account and deduct the taxes from the remaining $1K. The W-2 would reflect gross pay of $11K (Boxes 1,3,5), the appropriate taxes (Boxes 2,4,6), and the full $10K would be shown in Box 12 w/ code AA.

Scenario 2 - you'd put the remainder ($9K plus or minus) into his Roth account after having deducted taxes. The W-2 would reflect gross pay of $10K (Boxes 1,3,5), the appropriate taxes (Boxes 2,4,6), and the $9K-plus-or-minus amount contributed to the Roth account in Box 12 w/ code AA.

Really, Roth contributions are no different from regular pre-tax deferrals (in the context of the current discussion) except you also take federal and state withholding when processing payroll and, on the W-2, you don't reduce Box 1 and you use a different code on Box 12. Regular pre-tax deferrals are subject to FICA and you don't reduce the amount that goes into the plan nor the amount reported in Box 12 of the W-2; so stay consistent for the Roth account.