Rollover Roth 401k To Roth IRA But Employer Matching Contributions Classified As Pre-Tax

[frank527]

I have a 401k from a previous employer which is roughly 4.5 years old and am over 59 ½. When I setup the 401k, I designated it as a Roth 401k. I wanted to start the process of doing a direct rollover to avoid the 20% withholding and have the Roth 401k funds directly deposited into a Roth IRA at another brokerage. When I contacted the 401k Roth brokerage, I was told that my contributions were classified as Roth contributions. However, the prior employer’s matching contributions were classified as pre-tax contributions though deposited into a Roth 401k.

Is there a way to resolve this problem or am I stuck transferring part of the Roth 401k funds to my Roth IRA and the other part, the pre-tax matching contributions, to a traditional IRA? I doubt the employer will help as many are leaving.

I imagine converting the pre-tax matching contributions in the Roth 401k to the Roth IRA will cost a lot of money.

(Hope I didn’t confuse anyone.)

Thanks for any help.

[Opus 17]

The broker and employer were correct.  Because the employer match was contributed pre-tax (not included in your wages), it must go into a pre-tax 401(k) account, even if your own contributions go into an after-tax Roth-option 401(k) account.  You will have to rollover the Roth 401(k) funds into a Roth IRA, and the pre-tax 401(k) funds into a traditional pre-tax IRA**.  

After you do the rollover to the pre-tax IRA, you can do the math to think about how much you might want to convert to a Roth IRA, and how fast.  If you spread out the conversions over time, that may lower the tax burden.  Also, there are certain long-term advantages to have some funds in a traditional IRA.  You may want to discuss your options with a financial planner.  

**Yes, you could rollover everything into the Roth IRA all at once, but that will result in an immediate conversion with tax due.  If you do a pre-tax rollover to a traditional IRA, you can then take some time to plan the best way to manage those funds. 

[dmertz · Accepted solution]

Beginning with 2023, the SECURE 2.0 Act allows employer contributions to be Roth contributions.  However, few 401(k) plan agreements have been modified to allow these, so most plans still require that employer contributions are pre-tax, particularly since the IRS has not issued any guidance on how the employer is to report employer Roth contributions on your W-2 so that you can be taxed on them.   Any employer contributions made before 2023 were required to be pre-tax as Opus 17 said, so most, if not all, of your employer's contributions are indeed pre-tax.

The only way to have gotten the  pre-tax funds into the designated Roth account in your 401(k) is to have done In-plan Roth Rollovers which would have been reported on Forms 1099-R with code G in box 7.  Given that you haven't mentioned anything about doing IRRs, it does seem that the plan is correct that all of the employer contributions are pre-tax.

You can move the pre-tax funds to a traditional IRA by direct rollover and continue to defer that income or, as you indicated, you can roll them directly over your Roth IRA and pay the tax.  Direct rollovers where the funds are paid directly to the IRA avoid the 20% mandatory tax withholding.

[BSCVX77]

In 2024, I did a direct rollover of pre-tax matching monies to a regular IRA; the matching was part of a Roth 401k.  On the 1099-R, the Gross Distribution and the Taxable Amount of the pre-tax monies are equal. The Distribution Code is R.  

Turbo Tax suggests that I may need to amend my prior year's return, stating that "Your 1099 reports earnings on a contribution made in 2023." Is this necessary, since I did a direct rollover? 

[dmertz]

@BSCVX77 , code R in box 7 of a 2024 Form 1099-R reports a recharacterization from a Roth IRA to a traditional IRA or from a traditional IRA to a Roth IRA of a 2023 contribution.  It has nothing to do with a anything involving a 401(k).  If your recharacterization is already reflected on your 2023 tax return, there is nothing to amend.

[liana87]

Hi @dmertz,

I appreciated your insight on this post and was hoping you could offer guidance in my situation.

In 2025, I began contributing to a Roth 401k and my employer also matched a portion of the contributions. I am unsure whether the employer match went into the same Roth 401k account or into a separate 401k account. I assume that the employer match went into a separate 401k account since you mentioned that few 401k plan agreements have been modified to allow employer contributions to be Roth contributions. I also left that employer in 2025 and rolled all the money (with a direct rollover) into my Roth IRA at a brokerage in 2025.

I received two 1099-R forms for 2025. Form #1 appears to show the transfer of the Roth 401k contributions to my Roth IRA. Form #1 contains an amount in box 5 for employee contributions and has code H in box 7. Form #2 appears to show the transfer of the employer match to my Roth IRA. Form #2 contains code G in box 7. Both forms have 0.00 in box 2a as the taxable amount. On both forms, box 2b is NOT checked. 

If I assume that the employer match went into a separate 401k account, then I should have to pay taxes on the employer match since I rolled it to the Roth IRA in 2025 and I expected to receive a 1099-R with a taxable amount in box 2a. However, there is $0.00 taxable amount listed in box 2a on both forms. Do I need to use Form 8606 to report the conversion of the employer match to my Roth IRA even though there is $0.00 in box 2a and code G in box 7?

If I assume that the employer match went into the same Roth 401k account, then my research into SECURE 2.0 act indicates that I should still receive a 1099-R with a taxable amount in box 2a.... but I did not. Is it possible that the In-Plan Roth Rollover you mention below was performed? Or are my 1099-R forms incorrect?

[dmertz]

"Form #2 appears to show the transfer of the employer match to my Roth IRA. Form #2 contains code G in box 7."

This Form 1099-R reports a direct rollover of the traditional account in the 401(k) to a traditional IRA.  If these funds were instead deposited directly into a Roth IRA, then the Form 1099-R is wrong and should have the same amount in box 2a as is in box 1.  If you requested that the plan roll the traditional 401(k) over to a Roth IRA, they should correct the form.  If the request that you made to the plan did not specify that the traditional account was to be rolled over to a Roth IRA and you instead diverted the funds to be directly deposited into the Roth IRA, the plan will almost certainly decline to make a correction and you would need to submit a substitute Form 1099-R (Form 4852) with explanation and showing the correct taxable amount in box 2a.

TurboTax does not support e-filing Form 4852.  You would either have to print and mail your tax return or you perhaps could file with the incorrect Form 1099-R and then amend by mail.  However, the latter could result in being in additional charges depending on the timing of the additional tax payment.

Form 8606 is not involved.