Can Mandatory Contributions to a 401(a) Plan Be Designated as Roth?

Q: We are a public university that sponsors a 401(a) and 403(b) plan. We realize that, under the Secure 2.0 Act of 2022, we can permit employees to designate employer contributions as Roth contributions, beginning in 2024. But what about mandatory contributions? We have them in our 401(a) plan; they are picked up as pretax contributions under Internal Revenue Code Section 414(h) and are considered to be employer contributions for purposes of the 402(g) elective deferral limit.

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Unfortunately, it does not appear that mandatory pre-tax contributions to a 401(a) plan under Code Section 414(h) can be designated as Roth contributions under the new SECURE 2.0 Act provision. That provision, Section 604, only references matching and nonelective employer contributions and does not reference any other contribution type.

Furthermore, Section 604 only amended Code Section 402A, addressing the treatment of elective deferrals as Roth contributions. Code Section 414(h) remains unchanged. This makes sense, because Code Section 414(h) provides a mechanism for treating what would otherwise be after-tax employee contributions as pre-tax employee contributions, so allowing those contributions to be treated as Roth would defeat the purpose.

Further, an election by employees to designate whether the picked-up contributions are pre-tax or Roth could be viewed as a deferral election, which is not generally permissible under a public 401(a) plan.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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