Employer Contributions Can Now Be Treated as Roth Contributions

Effective in 2023, the SECURE 2.0 Act, now allows participants in a 401(a) qualified plan (such as a 401(k) or profit sharing plan), 403(b) plan, or governmental 457(b) plan to designate employer matching or nonelective contributions as Roth contributions, if permitted by the plan. However, there is one important caveat to this provision – Roth contributions must be 100% vested when made. For those plans that have a vesting schedule, there will need to be careful consideration of when this feature may be offered and if any changes to the existing vesting schedule need to take place.

A Few Items to Consider Before Offering this New Feature
This feature may add an extra layer of complexity to a plan’s administration. Here a few items to consider :

1. Participants will need to receive clear and consistent communications about this new feature and how it may differ from their current Roth option.
2.  The plan document will need to be amended to reflect this change in the plan’s design.
3. Implementing this change will take time as there will need to be a mechanism in place to make this new election.
   It’s important for Plan Sponsors to evaluate this optional provision, and we’re here to help. There are also alternative methods to achieving Roth recharacterization of plan accounts. Contact us with questions.