Two of the hot topics in the SECURE 2.0 legislation are two provisions related to after-tax Roth-type savings. We’re covering each provision one at a time in separate blogs. In our first blog in this two-part series, we covered the first Roth provision, which is mandatory and provides that catch-up contributions for individuals making over $145,000 must be after-tax Roth contributions. Read that blog here for more information.
The second Roth provision is optional and allows plan sponsors to offer non-elective or employer-matching contributions as after-tax Roth contributions.
All employer funds treated as Roth contributions must be immediately 100% vested As a result, employees using this option may face an unexpected tax burden when they complete their individual tax returns. The IRS has yet to confirm if the newly designated employer Roth contributions would be reported on Form 1099-R, Form W-2, or if a new form will be created for Roth elections and if they will be made annually. Thus, potential further guidance from the IRS may delay implementation.
If this is a provision you are considering, we recommend discussing with your consultant and recordkeeper how this would be implemented. Understanding what participant education is needed to ensure employees know the potential tax implications with employer Roth contributions could be a crucial hurdle to the financial engagement of your plan participants.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.