ROTH 401(k) & TAXES ON THE EMPLOYER MATCH

Submitted by ANTHONY SOKOLICH on Tue, 2020-09-08 15:57

I AM OVER (65) YEARS OLD AND I AM STILL WORKING. STARTING THIS YEAR, I STARTED TO CONTRIBUTE TO A ROTH 401(k) FOR THE VERY FIRST TIME. I DID THIS DUE TO THE ‘RMD” COMING UP WHEN I TURN (72). I ALSO REALIZE THAT THE DOLLARS THAT ARE MATCHED BY MY EMPLOYER, ARE CONSIDERED TO BE NON ROTH CONTRIBUTIONS, WHICH BECOME TAXABLE. AT THE END OF THE YEAR, HOW ARE THOSE MATCHING CONTRIBUTIONS REPORTED ON MY W-2? I WOULD ASSUME THE TAXES ON THE EMPLOYER MATCH WOULD BECOME DUE AT THE END OF THIS YEAR, IS THAT TOTALLY CORRECT?



Submitted by Alan - IRA critic on Tue, 2020-09-08 16:26

No, not correct. The employer matching contribution does not show on your W-2  and is not taxable until you distribute that money from your 401k or from the rollover IRA if the pre tax portion of your 401k is rolled over to an IRA.  Also, the Roth 401k balance will be subject to RMDs later on if you do not roll the Roth 401k balance to a Roth IRA, ideally no later than the year prior to the year you reach 72.  In other words, the employer matching contribution is handled no different than a matching contribution for a pre tax 401k deferral you made in the past. 

Submitted by ANTHONY SOKOLICH on Fri, 2020-09-11 16:12

HELLO.  I HAVE NO MORE PRE-TAX 401(k).  I ROLLED ALL OF THAT $$$$  OUT OF MY 401(k), AT THE END OF 2019.  SO, ALL THAT I AM DEALING WITH NOW — IS A 401(k) ROTH.  SO, CAN YOU DIRECT ME ANYWHERE TO GLEAN MORE INFORMATION?  SOUNDS LIKE THE TAX ON THE MATCH IS NOT DUE, UNTIL THE $$$$ IS DISTRIBUTED.  IF I DECIDE TO ROLL THAT ROTH 401(k) INTO SOMETHING LIKE “VANGUARD” —  WHEN I RETIRE, THE TAXABLE PART ENDS UP GOING WHERE?  I AM STILL A LITTLE CONFUSED BY ALL OF THE MECHANICS THAT ARE “IN PLAY” HERE.   WHAT WOULD BE A GOOD WEBSITE TO FURTHER RESEARCH THIS?  THANK YOU!

Submitted by Alan - IRA critic on Fri, 2020-09-11 20:48

  • Even though you rolled your pre tax 401k balance out of the plan, any mathing contributions on your Roth 401k contributions will be made to your pre tax account, so your 0 balance in that account will end when you receive the first matching contribution.  As indicated above, there are no taxes due on employer matching contributions until such contributions are eventually distributed out of a retirement plan. 
  • When you roll the new pre tax balance out of the plan, you can either roll it to a TIRA account (no tax due) or to your Roth IRA (taxes due for the year of distribution). 
  • When you roll your Roth 401k balance out of the plan, it must go only to a Roth IRA. You then must update your Roth IRA accounting if your Roth IRA is not yet qualified (5 years and 59.5) to reflect your new Roth IRA basis.  Taxation of any Roth IRA distributions before your Roth IRA is qualified are explained in the IRS Reg posted below.
  • https://www.law.cornell.edu/cfr/text/26/1.408A-10

Add new comment

Log in or register to post comments