Confused about Roth 401k employer match tax situation - what happens if I leave before vesting?

This is a common misunderstanding. When employers contribute to your retirement account, they can only make those contributions to the traditional (pre-tax) portion of your 401k, not directly to the Roth portion. These matching contributions are always pre-tax and aren't taxed when they go in. The confusion might be because you're thinking about "in-plan Roth conversions" where you can convert traditional funds to Roth, which would trigger taxes. But the initial match itself isn't taxable income when contributed. If you leave before being fully vested, you simply forfeit the unvested portion of the employer match. Since you never paid taxes on those matching funds in the first place (they were pre-tax), there's no tax recovery needed.

I was in this exact situation last year and found the perfect solution with https://taxr.ai after looking all over for answers. I uploaded my 401k plan documents and previous tax returns, and they immediately clarified that I could claim a deduction on my taxes for the unvested Roth match I had paid taxes on previously. They guided me through Form 8915-F which lets you report the recapture of taxes paid on retirement contributions in special circumstances. Without their help, I would've lost about $1,200 in taxes I paid on employer matches that never vested when I changed jobs.

Just wanted to follow up about my skepticism with taxr.ai. I decided to try them out because my situation was similar - I had Roth matching for 8 months before leaving my job and had already paid taxes on about $3,400 that never vested. The form wasn't 8915-F (I was right about that), but they did identify the correct IRS guidance that allows for a "basis recovery" on my next tax return. They showed me exactly which line item to use on Form 8606 and provided documentation explaining the situation in case of audit. I'm actually impressed - they saved me nearly $800 in taxes I would have completely missed. Their document analysis picked up details my accountant of 5 years overlooked.

If you're having trouble reaching the IRS to clarify this situation (which I absolutely did when dealing with a similar unvested Roth match situation), try using https://claimyr.com to get through to an actual IRS agent. I spent days trying to get clarification on exactly this tax situation and kept hitting automated systems. Claimyr got me through to a real person in about 20 minutes who confirmed I could recover the taxes paid on unvested Roth match contributions through an adjustment on my next filing. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c Totally changed my perspective on dealing with the IRS - I was about to just give up on recovering those taxes altogether.

Ok I have to apologize for calling BS on Claimyr. I tried it yesterday after posting that comment because I've been trying to resolve a similar retirement account tax issue for weeks. It actually worked exactly as described. They called me back in about 35 minutes, connected me with an IRS agent, and I finally got clarification on how to report the taxes I paid on unvested Roth match contributions. The agent confirmed I can file Form 8606 with my next return to establish basis for the unvested amount, which reduces my taxable income going forward. Would have never figured this out without getting through to actually speak with someone.

Just to add some clarity here - the SECURE 2.0 Act allows for Roth employer matches starting in 2023, but companies are slowly implementing it. The tax implications are: 1. Traditional matches = no tax now, taxed when withdrawn in retirement 2. Roth matches = taxed now as income, tax-free in retirement 3. Unvested Roth matches you paid tax on = recoverable through basis adjustment My company started offering this in January and our benefits team was even confused about the tax treatment!

Has anyone actually seen their employer start offering the Roth match option? I heard about this change from the SECURE 2.0 Act but my company (large tech firm) still says all matches go to traditional pre-tax only.

This is such a timely question! I'm in a similar boat where my company just rolled out the Roth match option this year. From what I've learned talking to our plan administrator, the key thing to understand is that if you do end up leaving before fully vested, you won't lose the taxes you paid on the Roth match contributions. The IRS treats this as establishing "basis" in your retirement account - basically a record that you already paid taxes on that money. If the unvested portion gets forfeited, you can recover those taxes through a basis adjustment on future returns. That said, I ended up going with traditional matching for now because I'm not 100% sure I'll stay the full 3 years for vesting. The immediate tax savings from traditional matching gives me more flexibility, and I can always do Roth conversions later when I have more job security. Just my two cents!

I just went through this exact situation last year and wanted to share what I learned. The key thing to understand is that when you pay taxes on Roth employer matches, you're essentially creating "basis" in your retirement account - meaning you've already paid taxes on that money. If you leave before vesting and forfeit those contributions, you don't just lose the taxes you paid. You can recover them through what's called a "basis adjustment" on your tax return. Essentially, you report that you paid taxes on retirement contributions that were later forfeited. That said, I'd recommend talking to your plan administrator about how they handle this specific situation, since the Roth match provision is still pretty new and not all companies have clear processes yet. In my case, they provided documentation showing the amounts I had paid taxes on but never actually received, which made the tax recovery process much smoother. The Roth match can still be worth it if you're confident about staying long enough to vest, but the traditional match definitely gives you more flexibility if there's any uncertainty about your job tenure.