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May 2024

IRS Issues Additional SECURE Act 2.0 Guidance

Completion of IRS Reporting Forms For Roth SEP-IRAs Contributions and Roth SIMPLE-IRAs Contributions

On May 2, 2024 the IRS issued news release 2024-18. The IRS explains how the Form W-2 and the Form 1099-R are to be prepared by an employer which has authorized an employee to make either a Roth SEP-IRA contribution or a Roth SIMPLE-IRA contribution.
An employee who designates the employer’s SEP-IRA contribution as a Roth must include this amount in income. There is a quasi-conversion.

An employee who designates his or her elective deferral contributions as a Roth SIMPLE-IRA must include this amount in income. There is a quasi-conversion.
Both of these contributions are after-tax contributions. So, the IRS guidance for completing Form W-2 is: Contributions made at the employee’s election to a Roth SEP or Roth SIMPLE-IRA are subject to federal income tax withholding, the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA), These contributions should be included in boxes 1, 3 and 5 (or box 14 for railroad retirement taxes) of Form W-2. They’ll also be reported in box 12 with code F (for a SEP) or code S (for a SIMPLE-IRA).

An employee of a SIMPLE-IRA plan who designates the employer’s matching contribution or the nonelective contribution as a Roth SIMPLE-IRA contribution must include this amount in income. These contributions are also after tax contributions. They are quasi-conversions. Such a transaction is not to be reported on the Form W-2. Rather, it is to be reported on the Form 1099-R. So, the IRS guidance for completing Form W-2 is: Employer contributions to a Roth SEP or Roth SIMPLE-IRA are not subject to withholding for federal income tax, FICA or FUTA. These contributions should be reported on Form 1099-R for the year in which they’re allocated to the individual’s account. The total amount should be listed in boxes 1 and 2a of Form 1099-R with code 2 or 7 in box 7, and the IRA/SEP/SIMPLE checkbox checked.

De Minimis Financial Incentives. There are times when an employer has a hard time in getting its employees to make elective deferral contributions to its 401(k) or 403(b) plan.

The SECURE Act 2.0 changed the law so that an employer may pay a financial incentive to those employees who accept the employer’s offer. For example, the employer pays an employee $100 if she or he agrees to start making elective deferrals. That $100 is to be · included in the employee’s income and is subject to regular tax withholding.

The IRS issued guidance on these de minim is payments in Notice 2024-23 Refer to Questions and Answers K-1 to K-8.

The new laws do not permit an employer sponsoring a SIMPLE-IRA plan to pay a de minimis financial incentive.