Employer match of Roth 401k

[thepensionmaven]

I am seeing conflicting answers to this one.

A client has established a 401k/PSP for 2024, plan allows Roth deferrals and a Safe Harbor Match. The funding institution has insisted on two accounts for each participant making both traditional as well as Roth contributions.

Can the employer SHM be made to each account based on the ratio of contribution to each traditional or Roth - total not to exceed the matching formula in the plan?

Getting conflicting answers

[justanotheradmin]

Only if the plan allow and the participant elects it that way. Employer contributions, including safe harbor match, are contributed on a pre-tax basis. They only go in as Roth, in this case Roth Safe Harbor, unless the plan allows for employer contributions as Roth (new with SECURE 2.0) and the participant has chosen for them to be done that way. 

[thepensionmaven]

I assume I did not ask correctly.  OK, Roth contributions go into a Roth 401(k) account, obviously.

As far a the employer safe harbor match, I have not yet seen any plan that specifies employer safe harbor match go into traditional match account or Roth match account.

In fact, there is no plan document I have seen (yet) that gives the participant the option of which account, Roth or traditional and there are no election forms for such.

ADP payroll is telling my client that since the employer match is going into the employees' Roth 401(k) account, the employer match is taxable, for the current year?  How can that be when the match would not be known if the match is made after the W-2s  are available?

[justanotheradmin]

17 minutes ago, thepensionmaven said:

As far a the employer safe harbor match, I have not yet seen any plan that specifies employer safe harbor match go into traditional match account or Roth match account.

nor have i, because its brand new, and the document providers are trying to figure out what to draft based on the limited guidance. 

Prior to the enactment of SECURE 2.0 in December 2022, the only option was that Safe Harbor Match was pre-tax. If the plan allowed, after the match is deposited the participant could convert to Roth Safe Harbor, via a roth conversion or a roth rollover. Otherwise, when the participant gets a distribution of the Safe harbor match amounts paid to themselves, its taxable as income, the same as any other pre-ta
Now, with SECURE 2.0, if the plan document allows, and the participant chooses, when the Safe Harbor Match is deposited, it goes in directly to a Roth Safe Harbor source. The participant receives a 1099-R showing it as taxable based on the year it was deposited.  See https://www.irs.gov/pub/irs-drop/n-24-02.pdf

24 minutes ago, thepensionmaven said:

ADP payroll is telling my client that since the employer match is going into the employees' Roth 401(k) account, the employer match is taxable, for the current year?  How can that be when the match would not be known if the match is made after the W-2s  are available?

its taxable if the participant elects the contribution be made as roth. The income is reported on Form 1099-R. If the match is for 2023, and deposited in 2024, for the employee it is taxable as 2024 income. for the participant's tax impact, it doesn't matter what year the benefit accrued, only when it was deposited. the notice from the IRS goes into this, and is definitely worth a read, even though it's 80 pages. 

[Lou S.]

justanotheradmin has the details correct. All employer contributions are pre-tax by default.

IF the plan allows under SECURE 2.0 for the participant to elect the Employer contributed to be deposited as ROTH and the participant makes an election for the employer contribution to be deposited as ROTH then the contributions would be deposited to the ROTH account.

And yes those contributions are taxable to the participant in the year they are contributed. Perhaps there is some recent IRS guidance that I missed as to how such contributions are reported to the the employee as taxable in that year - W-2?, 1099-R?, 1099-Misc? don't know. Which is why I'm not really aware of any providers yet offering ROTH employer contribution elections until we have clear IRS guidance.

EDIT - oops, I see I did miss the IRS guidance. Guess I have some weekend reading.