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jwallace
February 14, 2019
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After tax Roth 401(k) employee deductions & company contributions

  • February 14, 2019
  • 2 replies
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We are having trouble setting up the after-tax Roth 401(k) employee deduction & company contribution. My question has two parts -

 

1) When following the instructions to set up an after-tax Roth 401(k) employee deduction, we hit a snag at the end of the process. The only option in the drop down menu when trying to enter the employee deduction are to calculate an amount based on "gross pay" and there is no "net pay" option. Since this should be an after-tax deduction, shouldn't we have the option to calculate the amount based on net pay?

 

2) quickbooks states the after-tax Roth 401(k) is not available as a company contribution through their service but the explanation for why does not seem adequate. It says that the entire contribution should be paid and reported separately through the provider. The funds will go into separate accounts with the provider - but how do we account for the company contribution on the employee's paystub if we don't run it as a company contribution through quickbooks? Is anyone else totally confused by this explanation? Any further details on why this is not allowed would be much appreciated!

 

Best answer by MirriamM

Glad to have you here with us, jwallace,

 

Let me help share information about setting up Roth 401(k).

 

A Roth 401(k) plan is a type of retirement plan. If the participant elects to designate a portion of their elective deferrals as a Roth contribution, then the designated contribution is taxed immediately and placed in a Roth 401(k) account. Earnings on the account accumulate tax-free. When the monies are distributed as part of a qualified distribution, the distribution is entirely tax-free. So the earnings on the Roth 401(k) account are never taxed if they are distributed as part of a qualified distribution.

 

The Roth plans are deducted after tax, therefore, the employee does not pay the taxes on the amount drawn at retirement. On the other hand, After tax means that this deduction item is taxable to taxes in which Gross Pay is the basis.

 

As for the Company contribution, per IRS requirements, the company contribution must be set up as a traditional 401(k), not as a Roth 401(k). You can check out IRS Publication 4530 for more information.

 

For other reference, I'm attaching a helpful article that you can check on: Set up a Roth 401(k) plan.

 

If you need further assistance with the steps, you can always contact our Customer Care Support team. They have the necessary tools like screen sharing to walk you through.

 

To contact us, here's how:

  1. Click the Help icon on the top right.
  2. Click Contact Us at the bottom.

If you have further questions concerning Roth 401(k), please feel free to reach back out. I'm always here to help. Have a great day!

2 replies

M
MirriamMAnswer
February 14, 2019

Glad to have you here with us, jwallace,

 

Let me help share information about setting up Roth 401(k).

 

A Roth 401(k) plan is a type of retirement plan. If the participant elects to designate a portion of their elective deferrals as a Roth contribution, then the designated contribution is taxed immediately and placed in a Roth 401(k) account. Earnings on the account accumulate tax-free. When the monies are distributed as part of a qualified distribution, the distribution is entirely tax-free. So the earnings on the Roth 401(k) account are never taxed if they are distributed as part of a qualified distribution.

 

The Roth plans are deducted after tax, therefore, the employee does not pay the taxes on the amount drawn at retirement. On the other hand, After tax means that this deduction item is taxable to taxes in which Gross Pay is the basis.

 

As for the Company contribution, per IRS requirements, the company contribution must be set up as a traditional 401(k), not as a Roth 401(k). You can check out IRS Publication 4530 for more information.

 

For other reference, I'm attaching a helpful article that you can check on: Set up a Roth 401(k) plan.

 

If you need further assistance with the steps, you can always contact our Customer Care Support team. They have the necessary tools like screen sharing to walk you through.

 

To contact us, here's how:

  1. Click the Help icon on the top right.
  2. Click Contact Us at the bottom.

If you have further questions concerning Roth 401(k), please feel free to reach back out. I'm always here to help. Have a great day!

    R
    R2919
    May 22, 2019

    This doesn't seem to answer the question on how to set it up for the employer portion.  What if the employee has both 401k and Roth contributions.  How do you set up the employer match  for both. 

    AlcaeusF
    AlcaeusF
    May 22, 2019

    Greetings, @R2919.

     

    Welcome and thanks for joining this conversation.

     

    You can set up a company contribution for an employee who has both 401k and Roth. However, as per IRS requirements, the it must be set up as a traditional 401(k), not as a Roth 401(k). Here's how:

     

    1. Go to Workers menu at the left pane, then Employees.
    2. Select the employee's name, then click Edit in the Deductions & Contributions section.
    3. Choose the following:

    • Deduction/contribution or garnishment - Deduction/contribution.
    • Deduction/contribution - New Deduction/contribution.
    • Deduction/contribution type - Retirement Plans.
    • Type - 401(k).
    • Employee deduction - None.
    • Company-paid contribution - the amount or % you need.

    4. Hit OK.

     

    That should do it. I'm also including these articles for additional information:

     

     

    Please let me know how everything goes or if you need further assistance. I'll be here to help. Take care and have a good one.

    C
    CMeGo
    December 28, 2023

    Yes, I am having the same issue setting up a correct Payroll Item. The company wants to contribute to an employee's Roth IRA (not a company 401k), which would be an after tax deduction. It needs to be shown on the pay stub as a company contribution and added to the employee's overall gross pay, but expensed to a company payroll expense or employee benefit account. I cannot do this with an employee deduction payroll item. This should be Payroll Item setup as a company after tax contribution listed in Payroll Liabilities and then paid to the employee's financial institution. Maybe the Qb Devs should do end user work and they would see the issue.

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