With employer Roth 401(k) matches, watch taxes

anything stated on non-taxed 1099-R from will need to be reported

By: Medore Lee
USA Today

.... If your company's offering you a Roth 401(k0 match, you should contribute enough to trigger that free money and boost your retirement savings.
..... But take note: This financial move could lead to a tax bill.
..... SERCE act 2.0, allowed employers for the first time to match Roth 401(k) contributions directly into a Roth account. Before the new law, employers, had to establish a second traditional 401(k) for their contributions to retirement funds.
..... There's a wrinkle in the new rules, though.
..... Remember that your Roth 401(k) contributions are taxed, allowing you, the employee, to withdraw the money during your retirement years without paying taxes.
..... But it's different for your employer. their contribution to your Roth 401(k) through matches are pretax, just like they would be if your company matched a tradition 401(k)
..... That means you're on the hook to pay taxes on your company's Roth contributions the year they're made.
..... "The biggest pitfall is remembering to ... cover the employer contributions," said Mark Seber, chief tax information officer at tax prepare Jackson Hewitt.
.... You'll owe feudal taxes on the amount your employer constitutes each year.
..... You'll "receive a 1099-R with a Code G in Box 7," said Mark Jaeger, vice president of tax operations at tax software company TaxAct. "This amount will be included as ordinary income on (your) tax return."
..... Your contributions should appear on your W-2, but since they're post-tax, you don't have to report them on your tax return.
..... But you'll have to report your employer's direct Roth 401(k) contributions, if any, shown on the 1099-R you should receive. that amount will be taxed.
..... More than 905 of retirement plans offer a Roth 401(k) option, according to brokerage giant Fidelity, but not many offer the match in its latest form so fr.
..... Fifteen percent have added the optional provisions of SECURE 2.0 to allow participants to elect Roth treatment of employer contributions, and one-quarter are actively considering this provision, said Plan Sponsor Council of America, an industry trade group. Nealy 40% have not and will not implement this provisions and rest are unsure.
..... "Though many plan sponsors like this provisions in theory, and the recent guidance has made it more attractive to offer, many don't want the added administrative complexity, especially if they already allow in-plan Roth conversions," the Plan Sponsor Council of America said.

How can I pay the taxes?

..... you have a few options for paying the taxes, tax experts say:
* Rep rot the contributions on your tax return as part of your income and pay when you file your taxes
* Increase your federal withholdings form your W-2 by filing a new W-4 with your employer if you don't want a larger tax bill when you file your taxes.
* Make estimated tax payments each quarter to cover the additional taxes
* If you live in a state with income taxes, you may wish to do the same in that state, Jaeger said.

HOME