Designated Roth 401(k) Contributions and IRS Form 8606

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.  

A recent call with an advisor in Tennessee is representative of a common question related to designated Roth 401(k) contributions. The advisor asked: “My client made designated Roth 401(k) contributions in 2021. Because these contributions are made on an after-tax or nondeductible basis, does that mean he must file IRS Form 8606 to report them?” 

Highlights of Discussion

• When dealing with tax-related questions, always seek the guidance of a tax professional. What follows is general information based on IRS tax forms. 

• No, designated Roth contributions made to a 401(k) plan are not reported on IRS Form 8606, Nondeductible IRAs (see the instructions for Form 8606).  The 401(k) [or 403(b) or governmental 457(b)] plan administrator reports such contributions on a worker’s IRS Form W-2, Wage and Tax Statement in box 12. Because designated Roth 401(k) contributions are subject to federal income tax withholding and Social Security and Medicare taxes (and railroad retirement taxes, if applicable), they also must be included in boxes 1, 3, and 5 (or box 14 if railroad retirement taxes apply) on Form W-2. 

• Please note that where designated Roth 401(k) contributions might show up on Form 8606 is on Line 22, which is used to report the basis in a Roth IRA. Any designated Roth 401(k) amounts an individual rolls into his Roth IRA during the year would be included as basis in the Roth IRA and included in the figure reported on Line 22. 

Conclusion

Designated Roth contributions made to a 401(k) plan are not reported on IRS Form 8606, Nondeductible IRAs. However, a taxpayer will need to include designated Roth 401(k) amounts rolled into a Roth IRA in the value of the Roth IRA’s basis.