HomeFinance NewsPersonal finance401(k) Trap: Match Changes to Sting Taxpayers at Filing

401(k) Trap: Match Changes to Sting Taxpayers at Filing


This 401(k) match change could have ‘unintended consequences’ at tax time, experts say


If you have opted into a Roth 401(k) after-tax matching contribution from your employer, be aware of potential tax implications.

These contributions are counted as extra income and taxes are not automatically withheld.

Previously, Roth 401(k) matches were placed into pretax accounts, but changes under the Secure 2.0 Act now allow them to be in Roth accounts.

While Roth accounts offer tax-free growth and withdrawals in retirement, the after-tax nature of contributions means you pay taxes upfront.

This employer match increases your adjusted gross income, potentially leading to higher tax liability.

For example, if your salary is $100,000 and you receive a 6% employer match of $6,000, you could owe an additional $1,320 in federal income taxes.

State income taxes may also apply.

As your employer’s Roth match is not reflected on your W-2, you will receive a Form 1099-R instead.

This could lead to confusion at tax time.

To prepare for the increased tax liability, consider increasing your federal and state tax withholdings with your employer or making quarterly estimated tax payments.

You may also want to consult a tax advisor for personalized guidance.

By understanding these potential tax implications, you can plan accordingly and mitigate any unpleasant surprises come tax time.

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    “If you’ve opted into your employer’s Roth 401(k) after-tax matching contributions this year, it could trigger a tax surprise without proper planning, experts say.”


    “Previously Roth 401(k) matches went into pretax accounts.”

    “However, those new matching Roth contributions could have “unintended consequences” at tax time, according to Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.”

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