If you have taken distributions from any tax-deferred retirement account, you know that the distribution is reported on IRS Form 1099-R. A Form 1099-R is not usually issued for money that is added to your account in the form of contribution. However, Secure 2.0 Act changed the rules.

Under these changes, you may elect to have certain employer contributions made to a Roth account under your employer’s plan if permitted. If you make that election, you may receive a Form 1099-R, even though you did not take money out of the plan. This new rule could apply to your designated Roth accounts, Roth SEP IRAs, and Roth Simple IRAs when employer contributions are made to your account.

Background: Secure 2.0 Act Changes Rules

Before Secure 2.0 Act, employer matching and nonelective contributions were not permitted to be made directly to Roth 401(k)s, Roth 403(b)s, and governmental Roth 457(b) accounts. Instead, those amounts were contributed to the traditional (pretax) side of the plan, and a participant could later convert them through an in-plan Roth rollover if permitted.

In addition, Roth treatment was not permitted for employer contributions made to SEP IRAs and Simple IRAs.

Secure 2.0 Act changed these rules. Employers may now allow employees to elect to have fully vested matching and nonelective contributions made to a designated Roth account under a qualified plan, or a Roth SEP IRA or Roth Simple IRA.

For tax treatment and income tax purposes, the IRS treats these designated Roth employer contributions as if they were in-plan Roth rollovers (converted from your traditional account to your Roth account under the plan).

For SEP and Simple IRAs, the IRS treats the contribution as if it were first contributed to a traditional IRA and then immediately converted to a Roth IRA.

Because of this reporting treatment, Form 1099-R must be issued for these contributions.

How the 1099-R Reporting Works

The tax reporting depends on the type of account.

For qualified plans, such as 401(k)s, 403(b)s, and governmental 457(b)s, Roth matching and nonelective contributions are reported on Form 1099-R for the year in which the contributions are allocated to the participant’s account:

Box 1-Gross Distribution (total amount allocated)Box 2a-Taxable Amount (same amount, generally fully taxable)Box 7-Code G, which is used to report a direct rollover

For employer contributions made directly to a Roth SEP IRA or Roth Simple IRA, the IRS treats the amount as if it had first been contributed to a traditional IRA and then immediately converted to Roth:

Box 1-Gross DistributionBox 2a-Taxable AmountBox 7-Depends on age at the time of conversion: Code 2 if the IRA owner is under age 59½; Code 7 if the IRA owner is at least age 59½. Code 2 indicates the 10% early distribution tax does not apply.The IRA/SEP/Simple checkbox is marked.

Having employer contributions made to a Roth account is not automatic. It is available only if your employer includes this provision. And you must elect Roth treatment. Otherwise, these contributions would be made to your traditional account under the plan.

The Taxable Year Might Not Be What You Expected

A key planning issue involves timing.

Employer contributions for a prior employer tax year can be deposited during the following calendar year, up to the employer’s tax-filing due date plus extensions.

The Form 1099-R is issued for the year the employer contribution is actually added to your account, not necessarily the year it relates to.

This means a 2025 employer contribution could be reportable and taxable in 2026 if it is deposited in 2026.

Because employers may make these contributions as late as the due date of their tax return, including extensions—September or October of the following year, depending on the business structure—you could find that an employer contribution attributable to 2025 is included in your income for 2026.

The Tax-Planning Risk

This timing difference creates a real tax-planning risk.

Your tax professional may determine that 2025 is a favorable year for recognizing additional Roth income. However, if the employer contribution is not allocated until 2026, the income will be recognized in 2026 instead.

The key question becomes: Would 2026 be a good year for that Roth income?

Discuss your plans with your tax advisor before making an election, because this tax treatment generally cannot be undone.

Should You Choose Roth Treatment?

Making this election requires the same type of analysis used when deciding:

Whether to contribute to a Roth or traditional IRA.Whether to make salary deferrals to a traditional or Roth 401(k).Whether to do a Roth conversion.

For the year the employer contribution is allocated to your Roth account, the amount is included in your income and reported to both you and the IRS on Form 1099-R.

If you instead elect to have the employer contribution made to your traditional account, the amount is not included in income until you choose to distribute or convert the amount.

Your advisor will help you decide whether it is more tax savvy to choose current income inclusion in exchange for future tax-free qualified distributions.

What You Should Do If You Receive a 1099-R

Your tax preparer will need to know how to report the amount on your tax return. Therefore, you must provide them with a copy and let them know that it represents an employer Roth contribution. And be sure to contact the issuer immediately if the form contains inaccuracies.

Denise Appleby will present the keynote “Congress Continues to Lean Roth” at Financial Advisor’s 11th Annual Invest In Women Conference, April 21-23.