Question of the Week: Why Can't My Employer Match Go In a Roth Account

When I was younger, I worked alongside my Dad in our family’s retail wine business.

I remember one day that someone complained about something seemingly innocuous and I tried to ignore whatever we did to cause the customer’s discomfort. We had so many happy customers, should we pay attention to this one guy?

(Call it youthful ignorance!)

It was just one customer I thought but my Dad countered. "One makes a trend,” a sentiment that has stayed with me most of my life.

With that in mind I’d like to report that two people asked me the exact same question this week. If one makes a trend, than two may suggest this topic is currently trending.

The question is about Roth accounts. If an employer offers a Roth account with a match, how come the match goes in a traditional tax-deferred account like your 401K or IRA - and not in the Roth account?

Because the IRS says so, that’s why!

Straight from the horse’s mouth.

Can my employer match my designated Roth contributions? Must my employer allocate the matching contributions to a designated Roth account?

Yes, your employer can make matching contributions on your designated Roth contributions. However, your employer can only allocate your designated Roth contributions to your designated Roth account. Your employer must allocate any contributions to match designated Roth contributions into a pre-tax account, just like matching contributions on traditional, pre-tax elective contributions.

So there you have it! As I counsel all my clients and anybody else who will listen to me, do the Roth if you can. Pay the tax now. Get it over with and, once the tax piper has been paid, you’ll know that the IRS will never tax that money again.

It will be all yours, (unless, of course, they change the rules on Roth accounts which doesn’t seem likely.)

That’s just the way it works!

Required disclosures: Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor. BCM and (Strataxa Retirement Advisors, LLC) are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents.

Information provided is not intended as tax or legal advice, and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional