By Ian Berger, JD IRA Analyst
On December 20, 2023, the IRS issued Notice 2024-02, which includes guidance on 12 provisions of the SECURE 2.0 legislation. This article will address the guidance on Roth employer contributions to 401(k) and other plans.
Most workplace savings plans provide company contributions. Those contributions are either matching contributions only for employees who make employee deferrals or across-the-board (“nonelective”) contributions for all eligible employees.
Up to now, employer contributions, including matches on Roth employee contributions, had to be made to a pre-tax account within the plan. However, beginning in 2023, SECURE 2.0 allowed for employer contributions to be made to Roth accounts. Although effective last year, few (if any) plans have offered Roth employer contributions because of the need for recordkeepers to adjust their systems and because of the lack of IRS guidance. With a year to get ready and the guidance in Notice 2024-02, hopefully recordkeepers will soon be able to offer this feature.
The IRS Notice makes clear that employers are not required to make their contributions on a Roth basis. It is optional, not mandatory. In addition, if a company decides to make Roth employer contributions available, it cannot force that option on employees. Instead, employees must have an opportunity, at least annually, to elect to have employer contributions made to a Roth account and to change that election.
The Notice also answers several unresolved questions about Roth employer contributions:
Copyright © 2024, Ed Slott and Company, LLC Reprinted from The Slott Report, January 15 2024, with permission. https://www.irahelp.com/slottreport/irs-issues-helpful-guidance-roth-401k-employer-contributions Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
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