Gusto 401(k) plans support Roth contributions and traditional pre-tax contributions, but do not support non-Roth voluntary after-tax contributions. This article explains what that means and why backdoor Roth rollovers are not available.
Gusto 401(k) plans support Roth contributions (a specific type of after-tax contribution) and traditional pre-tax contributions. We do not support non-Roth voluntary after-tax contributions at this time.
A backdoor Roth rollover lets participants convert voluntary after-tax contributions into Roth funds — either within the plan or by rolling them out to a Roth individual retirement account (IRA). To make this work, a plan needs to allow one of the following:
In-plan Roth rollovers, which convert non-Roth after-tax money to Roth within the plan
Distribution of voluntary after-tax contributions at any time, which lets a participant roll the money into a Roth IRA immediately
Gusto 401(k) does not support either of these provisions.
Voluntary after-tax contributions would allow participants to make backdoor Roth rollover contributions above the annual deferral limit on Roth 401(k) contributions. While that may sound appealing, this type of arrangement frequently causes the plan to fail certain nondiscrimination tests. If those failures are not corrected, the tax-qualified status of the plan could be at risk.
This information is for general education purposes only and is not intended to be tax advice. Consult a qualified tax professional before relying on the information provided here.