SECURE Act Impact on Roth Options
Starting in 2026, if a taxpayer's FICA wages for the prior year exceeds certain thresholds, any catch-up contribution to an employer-sponsored retirement plan must be treated as a Roth contribution. That means these funds are contributed with after-tax dollars, so they will not reduce current taxable income, but can be withdrawn tax-free in the future. The $145,000 amount will also be indexed for inflation in future years (to $150,000 for 2026). The IRS has clarified that employers are not strictly required to offer a Roth 401(k) option—but will be prohibited from allowing employees to make catch-up contributions if they do not make the Roth option available.
We asked two professors and authors of Tax Facts with opposing political viewpoints to share their opinions about whether the SECURE Act 2.0's Roth catch-up contribution mandate will motivate more employers to offer Roth 401(k) savings options.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Bloink: Beginning this year, many higher income taxpayers will have no choice but to classify catch-up contributions as Roth contributions. These are the highest-income taxpayers in America, some of whom will now also have the option of making enhanced catch-up contributions to Roth accounts. Many employers are simply not going to risk losing these valuable employees by failing to offer the important catch-up option as an employment benefit.
Byrnes: Many of these Biden-era changes only serve to make the retirement savings landscape even more complicated than it already was. Employers who don't currently offer Roth 401(k)s are not going to want to wade into the complexities of the new enhanced catch-up contribution rules in the first place. These new requirements will have little to no impact when it comes to motivating employers to offer the additional Roth savings option.
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Bloink: The IRS has yet to clarify what will happen if the employer doesn't actually sponsor a Roth 401(k)--though it has been clear that employers are in no way obligated to offer a Roth 401(k) feature. Because of the new Roth catch-up mandate for the highest income taxpayers, more employers will be motivated to create the Roth option, giving access to a valuable savings option to key employees who they may need to retain.
Byrnes: Ease of administration is a leading factor in small business employers' decisions on whether to offer a retirement plan--and which type of savings option to choose. Until we can make the administrative issues simple, small business clients aren't going to be motivated to elect to offer a Roth savings option within their company-sponsored plans.
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Bloink: The desire to retain some of the most valuable employees will surely provide employers with strong motivation and increase the chances that a wider range of employers will decide to offer a Roth savings option. This is especially true when we're factoring in the enhanced catch-up option for taxpayers aged 60-63, which makes the catch-up contribution even more valuable for the group of employees that are most likely to represent long-term employees.
Byrnes: Large employers out there are already offering the Roth savings feature. These new changes aren't going to be a motivating factor by any means. The enhanced catch-up contribution rules themselves are overly complex, so the bottom line is that employers aren't going to want to deal with yet another set of rules. That's true even if that does mean some employees aren't going to be eligible to make catch-up contributions.