Secure 2.0 is keeping the headlines busy in financial news. Another crucial (though optional) provision that has everyone talking is after-tax savings for the employer match.
Effective immediately, employees can elect to receive an employer match in an after-tax capacity (if offered in the plan). This will likely cause a lot of buzz amongst participants because it reduces their total taxable resources in retirement. However, participants may not realize that they are responsible for the taxes on those contributions now (instead of later).
It’s likely that without proper education, employees who make this election will feel frustrated when they see more taxes disappear from their paychecks. To prepare well for this, individuals should calculate potential taxes owed and consider the immediate impact on their budget.
Deciding whether or not a Roth account makes sense is a complicated decision. For more information about after-tax saving, check out this SmartPath article.