When i am setting up a Roth 401K why cant i add the employer contribution like a regular 401K?

Hi there, Clare.

I am here to give insights on setting up your Roth 401k employer contribution in QuickBooks Online (QBO).

A Roth 401(k) is similar to a traditional 401(k) but with a significant difference in how contributions and earnings are taxed. Contributions to a Roth 401(k) are made with after-tax dollars, meaning you'll pay income taxes on the money you put in. The advantage of a Roth 401(k) plan is that when you make withdrawals in retirement, they are entirely tax-free, including any interest, capital gains, or dividends. Roth 401(k) plans are typically more beneficial for higher-income earners or those who expect to be in a higher tax bracket in retirement.

IRS requires that the Company contribution must be set up as a traditional 401(k), not as a Roth 401(k). You can learn more about this by reading IR's Article 4530. 

Furthermore, I'm adding this article if you need more details about creating a company contribution or retirement plan deduction in QBO: Set up or change a retirement plan.

Let me if you have other questions about setting up the Roth 401k in QBO by leaving a comment. I'll be here to assist you at any time.

This is just what I was wondering about. I want to make sure I understand your response correctly. When I am setting up an after-tax Roth 401(k) for an employee, I will also have to create a 401(k) deduction of 0% for the employee in order to enter the employer contribution. Whereas if the employee has chosen a pre-tax 401(k), I can just enter the employer contribution in the same screen where I enter the employee's contribution. Is that correct?

You’ve got it right, Sarah. Your comprehension of how to set up contributions for a Roth 401(k) compared to a traditional pre-tax 401(k) is accurate, and I’m excited to assist you as you navigate this process.

When setting up a Roth 401(k) for an employee, setting their contribution to 0% to enter the employer contribution will be treated as a traditional (pre-tax) contribution.

In contrast, if the employee has chosen a traditional (pre-tax) 401(k), you can enter both the employee and employer contributions on the same screen without needing to adjust the employee's contribution. This distinction ensures proper handling of contributions for tax purposes.

Furthermore, I'll share these articles that offer guidance on effectively handling your deductions and contributions using QuickBooks Online Payroll. These resources will assist you in updating payroll items, establishing retirement plan deductions, and ensuring precise payroll management.

• Set up or change a retirement plan
• Set up and manage company contribution
• Retirement topics - Contributions

I also suggest utilizing the QuickBooks Payroll service. It offers access to certified QuickBooks Payroll experts who can provide personalized help with payroll tax queries anytime. This service helps manage payroll tax filings and employer contributions efficiently.

It’s great that you’re taking the time to clarify these details, as this knowledge will help ensure a smooth and compliant setup for your employees. Whenever you have more concerns about employee contributions, count on us to back you up. Your inquiries are always welcome here.

Thanks for your help. While poking around looking for the answer, I saw something that mentioned choosing "company-only plan" for the employer contribution. Would this be better to do? What is the difference between using "company only plan" and just entering it under 401(k)? Thanks again!

Let’s dive into the key distinctions between company-only plan types and 401(k) so you can make the best decision for your team, Sarah.

In a company-only plan, the entirety of the retirement contributions is handled by the company on behalf of the employees. The company bears the full responsibility for the funding. It's simple and straightforward since employees don’t need to worry about making contributions themselves.
 

A 401(k) plan, on the other hand, is more of a partnership. Both the company and the employees shared a portion of contribution into the retirement fund. The company often matches the amount that each employee contributes, which is a great incentive for employees to save.

As you consider which retirement plan to implement, you can always think about whether you’d prefer a structure where your employees also contribute to their retirement savings or if the company will take on the full responsibility of funding their plans.

For further details about the plans and their limits being offered in QuickBooks Online, you can always check this article to determine, modify, and set up your preferred retirement plans:
 

• Set up and manage company contributions
• Setup and change a retirement plan

Once done, you can now start generating your paychecks for your employees: Create and run your payroll

It's good to know that you engaged yourself to be more informative about the different plans that was being offered in QBO for your company and employees. If you have any further concerns or clarifications about the company-only and 401(k) plans, you can always reply to this thread. We're one click away from you. Happy Holidays!