IRS Issues Guidance on ROTH Reporting Requirements

For years, employees who wanted to diversify the tax treatment of contributions to their 401(k) or 403(b) plan accounts could elect to have their own deferrals made on a Roth basis, but all employer contributions had to be made on a pre-tax basis.  SECURE Act 2.0 changed that, allowing employers to make matching or nonelective employer contributions to participant accounts on a Roth basis at the participant’s election.  This means that participants who elect to have employer contributions made as Roth will owe income tax on the contributions when allocated, but will avoid taxation on the ultimate qualifying distributions of principal and income.  However, it has been unclear how the election would affect tax administration for the participant in the year of contribution.  As a result, some employers have been hesitant to amend their plans to allow these Roth employer contributions.

In Notice 2024-02, the IRS addressed some of these administrative questions, providing guidance on the reporting and taxation of designated Roth employer contributions.

>> Read the full alert and guidance at CTTaxAlert.com