Roth 401k Employer Match
For employers who offer matching Roth 401k contributions….. my understanding is that the employer first makes pre-tax contributions, then they convert the contribution immediately for the employee.
Is that accurate? If so,
Does this strategy still work if the employee currently has pre-tax money in the 401k plan? Or would pro-rata rules apply similar to Roth conversions.
Permalink Submitted by Alan - IRA critic on Tue, 2025-02-04 13:06
No. A Roth matching contribution is made directly to the Roth portion of the account.
However, to collect the tax on this contribution, the plan must issue a 1099R that looks the same as if an in plan conversion (IRR) was done from the pre tax account. This is simply the IRS requirement for tax reporting and there is not an actual in plan conversion.
Therefore, there is no pro rating with any other portion of the plan. The 1099R will be 100% taxable.
If a taxpayer is also doing mega back door Roth contributions that are actual IRRs, they will be combined on a Roth matching 1099R which will have a non taxable portion. However, the plan accounting must track actual IRRs as they always have and this tracking cannot include amounts related to Roth matching contributions.
This will probably create confusion.