Elect the Roth Employer Match? Don't Be Surprised When You Receive the 1099-R
The SECURE Act 2.0 significantly changed the retirement planning landscape—creating both new options and new complications. One often-overlooked change involves a new rule that allows employees to elect to have their employer matching contributions treated as Roth contributions—effectively replacing the traditional pre-tax contribution with an after-tax contribution that will generate a valuable source of tax-free income during retirement. While this change gives employees a valuable new option, it can also generate confusion. The Roth contribution election will trigger reporting and tax obligations—and employees who made the election may be receiving Forms 1099-R for the first time. Many different considerations apply when deciding how to characterize any retirement account contribution. With this new Roth option on the table, it's more important than ever to understand both how the reporting works and the potential tax consequences.
Roth Employer Matching: The Basics
Under pre-SECURE Act 2.0 law, employer matching contributions to retirement plans were automatically made as traditional pre-tax contributions. Beginning in 2023, the SECURE Act 2.0 gave employees the option of electing to have employer matching or non-elective contributions made on a Roth basis (if the plan offers a Roth option). While Roth accounts are becoming more popular and widely available, not all plans offer this option.
This can be valuable for employees, who otherwise would be required to execute an in-plan Roth conversion to fund their Roth account. This, of course, generate tax liability on any earnings that have accumulated on the employer contribution between the time of contribution and the time of conversion.
1099-R Reporting and Employer Matching Contributions
Typically, an employee does not receive a Form 1099-R when they contribute to a retirement account. These forms are issued when the individual takes a distribution from their account. As such, many may not expect to receive a Form 1099-R based on their employer matching contribution.
Post-SECURE 2.0, employees who elect to have their employer match contributed to a Roth account may receive Forms 1099-R based on this election. This applies to employer matching contributions to Roth 401(k)s, Roth 403(b)s, Roth SEP-IRAs and Roth SIMPLE IRAs.
That's because the IRS treats Roth employer matches as though they were in-plan rollovers (meaning that the IRS treats the contribution as though the employee elected to convert traditional funds to a Roth account). The same is true for SEP IRAs and SIMPLE IRAs—the IRS continues to treat the transaction as though the funds were contributed to the IRA and immediately converted to the Roth in a taxable transaction.
This generates the Form 1099-R reporting obligation. The specific reporting depends on the taxpayer's situation. Box 1 will reflect the entire amount of the contribution (which is the gross distribution). Box 2a reflects the entire taxable amount. This will be the same as the gross distribution in Box 1 because the entire amount of a Roth contribution is taxable.
Box 7 is the distribution code. Code G is used to reflect a direct in-plan rollover from a qualified plan to a Roth. For IRAs, the Box 7 code will depend on the taxpayer's age (Code 2 if the individual is under 59 ½ and Code 7 if the owner is at least 59 ½, so that the early distribution penalty does not apply).
Evaluating the Tax Consequences of the Roth Election
It's also important to remember that the Form 1099-R will be issued with respect to the year the employer matching contribution is actually deposited into the account. Because employers have until their tax filing deadline to deposit the funds, that means the 1099-R may be issued for the year after the year to which the contribution relates. For example, if the employer waits until March of 2026 to deposit matching contributions for the 2025 tax year, those funds will be taxable to the employee in 2026, rather than 2025.
Because Roth contributions are taxable to employees regardless of whether made by the employee or employer, it becomes important that employees evaluate their current tax situation when deciding whether to make the Roth election. It may be more valuable to elect to have the employer contribution treated as a Roth contribution during a year where the taxpayer expects to be in a relatively low tax bracket—or before they're expecting a jump in tax brackets due to a raise or bonus.
Conclusion
The SECURE Acts have created valuable new options for employees when it comes to retirement income planning. That said, with new options come new potential complications. It's important for employees to evaluate the possible tax complications associated with the new Roth employer matching option.