Are contributions to a Roth 401(k) from an employer match pretax or after-tax?
I have had a Roth 401(k) for over 10 years through my employer. All my contributions have been after-tax. My employer matched my contributions until about nine years ago, due to the recession.
Now, I want to roll my Roth 401(k) over to a Roth IRA. However, I am told that the portion of my Roth 401(k) that was contributed by a match through my employer is considered pretax and must be rolled into a traditional IRA. Is this correct? If so, I will have $112,000 rolled into a Roth IRA and $6,000 into a traditional IRA. I thought all Roth earnings, including employer matched earnings, are non-taxable.
The information you received was correct. If you choose ROTH 401k contribution those will be after tax. But employer match or profit sharing contributions will be pre-tax. So you will owe taxes when they are withdrawn and will need to roll them over to a Traditioanal IRA.
That’s one of the misconceptions of the Roth 401k. When you made the Roth 401k selection, you deferred a portion of salary in a post-tax manner. In other words, you didn’t take the tax deduction for making a contribution to your retirement account. Thus, you can roll it out now to a Roth IRA. The employer’s matching is always pre-tax so the employer can take a tax deduction for its annual matching/contribution to employees’ account. Hence, you must roll that portion to a traditional IRA. However, if you’re currently in a low tax bracket, nothing stops you to do a Roth conversion. Instead of having two pots of money in two different tax shelters, you can have one pot of money in Roth after all. Best!
Yes, that is correct the employer match is typically in a "tax-deferred" account and as a result would need to be rolled-over to a traditional IRA. Employers get a corporate tax break by contributing a "match" on a pre-tax or tax-deferred basis.
In general, all company matching will be done into the traditional side of the 401(k). Even if your contributions are all to the Roth side, the matching will almost always be to the traditional. As such, yes, it makes sense that you will have the majority of your money in the Roth side (from your contributions), and a smaller amount in the traditional side (from your employer match).