IRS SECURE 2.0 Guidance Roth Employer Contributions By Pentegra On Dec. 20, 2023, the IRS released Notice 2024‑02, “Grab Bag” guidance on certain provisions of SECURE 2.0. Let’s begin with Roth employer contributions. Optional treatment of employer contributions or nonelective contributions as Roth contributions. SECURE 2.0 allows DC plan sponsors to provide participants the option to take matching or nonelective employer contributions on a Roth basis, effective as of Dec. 29, 2022. With respect to this new provision, the Grab Bag notice provides the following guidance: • Sponsors may, but are not required to, include in their plan any type of Roth contribution — employee elective, employer matching or employer nonelective. • The rules currently (pre-SECURE 2.0) applicable to employee elective Roth contributions also generally apply to the new Roth employer contributions. Thus, the designation of an employer contribution as a Roth contribution “must be made by the employee no later than the time that the contribution is allocated to the employee’s account and must be irrevocable.” Roth employer contributions “are subject to inclusion treatment and separate accounting rules,” and the employee must be able to make or change the designation at least once a year. • The employer Roth contribution is included in income in the year it is allocated to the participant’s account (even, e.g., where the contribution is “deemed to have been made” for the prior year). • Only fully vested employer contributions may be designated Roth contributions. • Employer Roth contributions are not subject to federal income tax withholding under IRC section 3402 and are not wages under IRC section 3121(a), for purposes of FICA, or IRC section 3306(b), for purposes of FUTA. • Employer Roth contributions “must be reported using Form 1099-R for the year in which the contributions are allocated to the individual’s account. The total amount of designated Roth matching contributions and designated Roth nonelective contributions that are allocated in that year are reported in boxes 1 and 2a of Form 1099-R, and code ‘G’ is used in box 7.” • Employer Roth contributions are not included in the IRC section 415 safe harbor definition of compensation. This is intended to be a brief overview of just one of the topics covered in IRS Notice 2024-02. For additional guidance regarding SECURE 2.0, please visit Pentegra’s SECURE 2.0 resource page by scanning the QR code. https://www.pentegra.com/expertise/the-secure-2-0-act-of-2022/ The information, analyses and opinions set out herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. Nothing herein constitutes or should be construed as a legal opinion or advice. You should consult your own attorney, accountant, financial or tax advisor or other planner or consultant with regard to your own situation or that of any entity which you represent or advise. The information set out or referred to above has been obtained from sources believed to be reliable. However, neither Pentegra Services Inc. (Pentegra) nor any of its affiliates has verified the accuracy or completeness of any such information. All information is provided “as is,” and Pentegra and its affiliates expressly disclaim all express and implied warranties regarding the information. Neither Pentegra nor any of its affiliates shall have any liability for any use of the information set out or referred to herein. Reprinted with permission of O3 Plan Advisory Services. 20 West Virginia Banker
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