Roth 401k And Roth IRA: What Plan Sponsors Should Know

As employees weigh the trade-off between tax savings now and tax-free withdrawals later, Roth options—funded with after-tax contributions and built for tax-free growth—have migrated from niche offerings to essential components of competitive benefits packages. For plan sponsors, mastering the nuances of Roth 401(k) and Roth IRA arrangements is critical to satisfying participant demand, maintaining ERISA compliance, and keeping administrative processes lean.

A Roth 401(k) functions as an employer-sponsored subaccount funded via after-tax payroll deductions, seamlessly integrated with a traditional 401(k) plan. In contrast, a Roth IRA is an individual retirement account opened at a financial institution, offering savers wide investment choices and self-directed control. Although both vehicles share the goal of tax-free qualified distributions, they diverge markedly in contribution limits, required minimum distribution rules, employer match treatment, and fiduciary responsibilities.

In the sections that follow, we’ll cover:

• Key contribution and eligibility thresholds for Roth 401(k)s and Roth IRAs
• Tax strategies for optimizing retirement income and complying with distribution rules
• The impact of recent legislative changes on RMD obligations and estate planning
• How employer matching works, including tax implications and participant communication
• Practical steps for adding Roth options to a plan, from document amendments to enrollment campaigns

Armed with these insights, plan sponsors can design Roth offerings that enhance participant outcomes, uphold fiduciary standards, and streamline plan administration.

The Basics: Roth 401(k) and Roth IRA Defined

Retirement plan sponsors are increasingly adding Roth options to their offerings, but it’s essential to understand what these accounts actually are—and how they differ. At their core, Roth 401(k) and Roth IRA accounts share a funding approach: participants contribute money that has already been taxed, then watch it grow tax-free. From there, plan features diverge along lines of employer involvement, contribution mechanics, and investment flexibility.

In the next three subsections, we’ll define each account type, trace its legislative roots, and highlight the features they share.

What is a Roth 401(k)?

A Roth 401(k) is essentially a designated subaccount within an employer’s existing 401(k) plan. Participants elect to direct a portion of their paychecks into this bucket on an after-tax basis. Because these dollars have already been taxed, qualified withdrawals of both contributions and earnings come out tax-free, provided certain conditions are met.

Introduced by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, the Roth 401(k) blends the payroll deduction and employer match functionality of a traditional 401(k) with the tax-free growth of a Roth account. From an administrative standpoint, Roth contributions flow through the same payroll and recordkeeping systems as pre-tax deferrals, making set-up straightforward for plan sponsors.

What is a Roth IRA?

A Roth IRA is an individual retirement account funded exclusively with after-tax contributions. Unlike Roth 401(k)s, these accounts are not tied to an employer and can be opened at banks, brokerage firms, or other custodians. Account owners select from a broad universe of investments, ranging from mutual funds and ETFs to individual stocks and bonds.

Congress created the Roth IRA under the Taxpayer Relief Act of 1997, honoring Delaware Senator William Roth. The legislative intent was to give savers a tax-free alternative to traditional IRAs. Today, Roth IRAs remain popular for their flexibility—there’s no employer to coordinate with, and contributors control investment choices and distribution timing.

Shared Features of Roth Accounts

Both Roth 401(k)s and Roth IRAs operate on a simple premise: you pay taxes on your contributions today in exchange for tax-free withdrawals tomorrow. There’s no upfront tax deduction when you fund these accounts, but once you satisfy the five-year holding requirement and reach age 59½ (or meet other qualifying criteria), both contributions and investment earnings can be withdrawn without owing income tax.

Despite differences in setup and sponsor involvement, these shared attributes make Roth vehicles powerful tools for tax diversification. By pairing Roth options with traditional pre-tax plans, participants can hedge against uncertainty in future tax rates and build a more flexible retirement income strategy.

Contribution Limits and Eligibility Requirements

Before rolling out Roth options, plan sponsors need to be crystal clear on how much participants can save and who’s eligible. The IRS sets separate rules for Roth 401(k)s and Roth IRAs—both in dollar limits and income tests. Understanding these thresholds helps sponsors update plan documents, guide participants accurately, and avoid compliance hiccups.

Roth 401(k) Contribution Limits

For 2025, employees can elect to defer up to $23,500 into a Roth 401(k) subaccount. Participants aged 50 or older may make an additional catch-up contribution of $7,500, bringing their total Roth 401(k) deferral limit to $31,000. There are no income ceilings for Roth 401(k) eligibility—any eligible employee may contribute, regardless of earnings. From a plan administration standpoint, these after-tax deferrals flow through payroll just like traditional 401(k) contributions, simplifying recordkeeping.

Roth IRA Contribution Limits

Roth IRAs carry much lower annual limits. In 2025, individuals under age 50 can contribute up to $7,000, while those 50 or older can add a $1,000 catch-up for a total of $8,000. Unlike Roth 401(k)s, Roth IRAs impose modified adjusted gross income (MAGI) phase-out ranges that restrict high earners:

• Single filers: contributions phase out between $146,000 and $161,000 MAGI
• Married filing jointly: contributions phase out between $230,000 and $240,000 MAGI

Participants whose incomes exceed the upper threshold cannot contribute directly to a Roth IRA, though they may explore backdoor Roth conversions in consultation with their tax advisor.

Combined Contribution Opportunities

Savvy savers often leverage both vehicles in the same calendar year:

• Under age 50:

  • Roth 401(k): $23,500
  • Roth IRA: $7,000
  • Combined total: $30,500

• Age 50 and over (including catch-ups):

  • Roth 401(k): $31,000
  • Roth IRA: $8,000
  • Combined total: $39,000

Encouraging participants to max out their Roth IRA after securing any employer match in the Roth 401(k) can deliver powerful tax-diversification—especially as they approach retirement.

For a comprehensive overview of contribution, catch-up, and eligibility rules, refer to the IRS’s detailed FAQs on designated Roth accounts.

Tax Treatment and Retirement Income Planning

Roth accounts flip the traditional tax deferral model: participants pay income tax on contributions today in exchange for tax-free growth and withdrawals down the road. Understanding how after-tax funding, qualified distributions, and tax-diversification strategies work is essential for plan sponsors guiding participants toward a well-balanced retirement income plan.

After-Tax Contributions and Growth

Contributions to Roth 401(k)s and Roth IRAs are made with dollars already included in taxable income. In practical terms, when an employee elects to defer $1,000 into a Roth 401(k), that $1,000 shows up as taxable wages on their W-2 rather than reducing their taxable income for the year. While take-home pay is lower compared to making a pre-tax contribution, every dollar in a Roth account—contributions and earnings alike—grows free of further income tax.

Over decades of compounding, tax-free growth can yield significant benefits. For example, a $5,000 annual Roth contribution earning a 6% average return could grow to more than $500,000 over 30 years—with no additional tax bill on distribution.

Qualified Distributions

A distribution from a Roth account becomes qualified—and therefore fully tax-free—when two conditions are met:

1. The account owner is at least age 59½ (or becomes disabled or passes away).
2. Five complete tax years have elapsed since the first Roth contribution.

Once these criteria are satisfied, participants may withdraw both their contributions and any investment earnings without owing income tax. Plan sponsors should remind participants that the five-year clock starts on January 1 of the year in which the first contribution is made, even if that contribution occurs later in the year.

Strategic Tax Diversification

By offering both Roth and traditional pre-tax options, sponsors empower participants to:

• Hedge against future tax-rate uncertainty.
• Tailor withdrawal strategies to their anticipated income needs and tax brackets in retirement.
• Create “tax buckets” that can be tapped in different years for optimal tax efficiency.

A participant might use traditional 401(k) funds to manage taxable income in early retirement and preserve Roth balances for years with higher income or required minimum distributions from other accounts. Clear communication around these scenarios can help participants craft a more resilient retirement income plan.

Non-Qualified Distributions

Distributions that occur before meeting the qualified conditions trigger income taxes on the earnings portion plus a 10% early-withdrawal penalty (contributions always remain tax- and penalty-free). Common exceptions to the penalty include:

• First-time home purchase (up to a $10,000 lifetime limit)
• Certain unreimbursed medical expenses
• IRS-defined hardship events

Plan sponsors should ensure that their Summary Plan Description outlines the ordering rules for distributions—contributions first, then earnings—and explains any hardship withdrawal procedures. By doing so, participants can make informed decisions and avoid unexpected tax liabilities.

Required Minimum Distributions (RMDs) and Estate Planning

Navigating required minimum distributions (RMDs) is a critical part of retirement plan compliance—and the recent legislative changes have reshaped how Roth accounts fit into the picture. Plan sponsors need to understand both the old and new RMD rules for Roth 401(k)s, recognize the lifetime RMD exemption for Roth IRAs, and appreciate the estate planning advantages afforded by these tax-free vehicles. Finally, sponsors must ensure plan documents reflect current RMD requirements to stay in step with ERISA and IRS mandates.

RMD Rules for Roth 401(k)

Prior to January 1, 2024, Roth 401(k) balances were subject to RMDs once participants reached age 73 (or age 72 for those whose 72nd birthday fell before 2023), mirroring the rules for traditional 401(k) plans. The Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act eliminated pre-death RMDs on designated Roth accounts in employer plans for tax years beginning after December 31, 2023. Now, participant balances in Roth 401(k) subaccounts may remain invested indefinitely without mandatory distributions—just like Roth IRAs.

Plan sponsors should note that while Roth 401(k) RMDs no longer apply to the account owner, inherited Roth 401(k) balances generally must be distributed under beneficiary RMD rules unless rolled into an inherited Roth IRA. For detailed guidance on beneficiary distribution requirements, sponsors can consult IRS Publication 590-B.

RMD Rules for Roth IRA

Roth IRAs have never required lifetime RMDs for the owner. This unique feature allows the account to compound tax-free for as long as the owner lives, providing both growth potential and flexibility. Upon the owner’s death, beneficiaries face distribution rules based on the SECURE Act’s “10-year rule”:

• Eligible designated beneficiaries (spouses, minor children, disabled individuals, etc.) may take distributions over their life expectancy.
• Most other beneficiaries must fully distribute the inherited Roth IRA within ten years of the owner’s death.

Because Roth IRAs deliver tax-free proceeds, they remain a powerful estate planning tool, but sponsors and participants alike should be aware of the post-death timing requirements.

Estate Planning Considerations

For many participants, the ability to leave a legacy of tax-free wealth makes Roth accounts particularly attractive. Unlike traditional accounts, Roth balances won’t increase a beneficiary’s taxable income when distributed. However, plan sponsors and advisors should remind participants that:

• Roth 401(k) balances should be rolled into a Roth IRA upon separation or death to avoid beneficiary RMD complications.
• Beneficiaries must understand their distribution windows—especially the 10-year rule—to avoid inadvertent penalties.
• Spousal rollovers are permitted, allowing the surviving spouse to treat an inherited Roth IRA as their own and defer any distributions until they choose to take them.

Clear communication on these points helps participants and their families make informed decisions and prevents surprise tax events.

Compliance Note

SECURE 2.0’s repeal of Roth 401(k) owner RMDs requires plan sponsors to amend their plan documents. Most sponsors must adopt these amendments by the end of the 2025 plan year—though earlier deadlines may apply depending on whether the plan operates on a calendar or fiscal year. Working with a knowledgeable TPA or ERISA counsel to draft and file the amendment ensures administrative documents stay compliant and participants receive accurate plan information.

Employer Matching Contributions: Mechanics and Tax Implications

When plan sponsors add a Roth 401(k) option, it’s crucial to understand that employer matching contributions follow traditional 401(k) rules—even if the participant’s deferrals are after-tax. Properly handling matches ensures accurate recordkeeping, compliant tax reporting, and clear participant communication.

How Employer Matches Work in Roth 401(k)

Employer matches are calculated the same way regardless of whether an employee elects Roth or pre-tax deferrals. Common match formulas include, for example, 50% of the first 6% of compensation or a dollar-for-dollar match up to a specified limit. However, every dollar of employer match is deposited into a traditional 401(k) subaccount as a pre-tax contribution. From an administrative standpoint:

• Payroll systems remit match contributions on an employer-paid basis.
• The recordkeeper credits those dollars to the participant’s traditional 401(k) subaccount.
• Earnings on those matches accrue tax-deferred, just like any other pre-tax contribution.

Plan sponsors should verify the mapping process with their recordkeeper to ensure Roth elections and matches remain properly separated.

Tax Treatment of Employer Match

Because employer matches are pre-tax, distributions of those amounts (and any associated earnings) are taxed as ordinary income upon withdrawal. Unlike Roth deferrals—where both contributions and earnings can come out tax-free—matched dollars do not enjoy the same tax-free treatment. Key considerations include:

• Match contributions reduce the participant’s future taxable income when distributed.
• Earnings on the match continue to compound without current tax, but will be taxed on distribution.
• Clear subaccount segregation prevents misreporting on Form 1099-R and erroneous withholding.

Participant Communication

Participants may assume that “Roth” applies to every dollar in their plan. To minimize confusion and support informed decision-making, sponsors should:

• Label statements and online dashboards to distinguish Roth and traditional subaccounts.
• Highlight in enrollment materials that employer matches flow to the traditional bucket and will be taxed on distribution.
• Provide side-by-side examples—showing how a $1,000 Roth deferral plus a $500 traditional match grow over time under different tax scenarios.
• Reinforce these distinctions during webinars, in-person meetings, and annual notices.

Clear, repeated messaging reduces surprise tax bills and fosters retirement readiness.

Roth IRA and Employer Contributions

By contrast, Roth IRAs are strictly individual accounts and do not allow employer contributions. Employers cannot deposit matching dollars into an employee’s Roth IRA; matches belong in the workplace 401(k). Plan sponsors should remind participants that to capture every dollar of employer match, they must contribute via the Roth 401(k) (or traditional 401(k)) before turning to an IRA. This distinction helps employees prioritize contributions and maximizes the benefit of free matching funds.

Investment Options and Participant Choice

Choosing the right investment lineup is a key factor in retirement success, yet the options available depend heavily on the account type. While a Roth IRA offers a nearly limitless menu of assets, a Roth 401(k) is constrained by the funds your plan sponsor selects. Striking the right balance between simplicity, cost efficiency, and diversification is essential both for participants seeking to build a robust portfolio and for sponsors fulfilling their fiduciary duties.

Roth 401(k) Investment Menu

Roth 401(k) plans typically feature a curated selection of mutual funds, target-date funds, and sometimes collective investment trusts. Plan sponsors work with recordkeepers to assemble a lineup that:

• Meets ERISA’s prudence and diversification requirements
• Offers a range of equity, fixed-income, and balanced options
• Includes a Qualified Default Investment Alternative (QDIA), often a target-date fund, for participants who don’t make an active election

Because participants can only invest in the funds chosen by their employer, it’s important that sponsors review their menu regularly. A lineup overloaded with high-fee or narrowly focused products can hinder long-term growth and attract fiduciary scrutiny. Quarterly or annual benchmarks against industry peers help ensure the menu remains competitive and cost-effective.

Roth IRA Investment Universe

In contrast, Roth IRAs give account holders free rein over hundreds—even thousands—of investment options. Depending on the custodian, participants may choose:

• Individual stocks and bonds
• Exchange-traded funds (ETFs) and index mutual funds
• Actively managed mutual funds
• Alternative vehicles such as real estate investment trusts (REITs) or commodities
• Self-directed IRA assets, including private placements or precious metals (where permitted)

This flexibility empowers savers to tailor risk and growth profiles precisely to their goals. However, too much choice can lead to analysis paralysis or the temptation to chase performance. Sponsors and advisors can guide participants toward low-cost, broadly diversified core portfolios—and remind them that fees, trading costs, and tax consequences still matter, even in a Roth vehicle.

Plan Sponsor Considerations

From a sponsor’s perspective, building a strong investment lineup means:

• Vetting and selecting low-cost, well-managed funds that span major asset classes
• Periodically reviewing performance, fees, and turnover to ensure continued suitability
• Offering a QDIA that aligns with the age and retirement horizon of the workforce
• Providing clear fund-comparison tools and fund fact sheets to help participants make informed choices

By combining a thoughtfully designed Roth 401(k) menu with education on Roth IRA possibilities, sponsors can cover the spectrum—from hands-off target-date investors to do-it-yourself savers. Regular fee benchmarking and documentation of the selection process also protect sponsors from fiduciary risk while giving participants confidence that their retirement savings are in capable hands.

Withdrawals, Loans, and Access to Funds

Participants may face urgent financial needs or simply be curious about tapping retirement dollars before retirement age. While Roth accounts generally encourage long-term saving, understanding the rules around early withdrawals, loan features, and rollovers helps plan sponsors guide participants toward sound decisions—and avoid costly penalties.

Early Withdrawal Rules for Roth 401(k)

With Roth 401(k)s, early distributions of earnings carry both income tax and a 10% penalty if taken before age 59½ or before the five-year holding requirement is met. Because withdrawals are prorated between contributions and earnings, participants can’t cherry-pick only their after-tax basis; each dollar withdrawn reflects a proportional blend of taxed and untaxed dollars.

There are two primary exceptions:

• Separation from service at age 55 or older: participants who leave their job in or after the calendar year they turn 55 can take penalty-free withdrawals from their 401(k), though earnings may still be taxable if the five-year rule isn’t satisfied.
• Hardship distributions: when plans permit, severe financial hardships (for example, unreimbursed medical expenses or funeral costs) may qualify for in-plan distributions. Even so, earnings withdrawn under a hardship are usually subject to taxes and possible penalties unless a specific IRS exception applies.

Plan sponsors should confirm that hardship criteria and processing steps are clearly described in the Summary Plan Description and communicated during enrollment.

Early Withdrawal Rules for Roth IRA

Roth IRAs treat contributions and earnings separately. Participants can withdraw the full amount of their contributions at any time—tax- and penalty-free—since those dollars were taxed before deposit. This “return of basis” feature makes Roth IRAs a flexible resource for unexpected expenses.

However, earnings withdrawn before age 59½ and prior to the five-year holding period are subject to income tax and a 10% penalty. Common penalty-free exceptions include:

• Up to $10,000 for a first-time home purchase
• Qualified higher-education expenses
• Unreimbursed medical costs above IRS thresholds

Highlighting the ordering rules—that distributions come from contributions first, then earnings—helps participants avoid unintended tax liabilities.

Loan Provisions

Roth 401(k) plans often include loan programs, allowing participants to borrow up to 50% of their vested balance or $50,000, whichever is less. Loans must generally be repaid within five years, with interest payments credited back to the participant’s account. Failure to repay on schedule converts the outstanding balance into a taxable distribution, potentially triggering the 10% early-withdrawal penalty on any earnings portion.

By contrast, Roth IRAs do not permit loans. Participants seeking temporary liquidity can use the 60-day rollover rule: they withdraw funds from a Roth IRA and redeposit the same amount into a Roth IRA (theirs or another) within 60 days. Missing that window turns the withdrawal into a distribution subject to tax and penalty on earnings.

Plan Sponsor Documentation

Comprehensive documentation is key to compliant plan administration. The Summary Plan Description and participant communications should:

• Define eligibility and process for early distributions and hardship withdrawals
• Outline loan availability, application steps, repayment schedules, and default consequences
• Explain distribution ordering rules, clarifying contribution-first treatment

Supplementing printed materials with online resources, decision-tree tools, and periodic reminders ensures participants understand their options and obligations—and shields sponsors with a clear record of disclosed procedures.

Fiduciary and Disclosure Obligations for Plan Sponsors

Adding Roth features to a retirement plan brings not just flexibility for participants but also heightened responsibilities for sponsors. Under ERISA, plan fiduciaries must act prudently and loyally, and they must furnish participants with clear, timely information about fees, investments, and plan provisions. The following outlines key fiduciary and disclosure duties when offering Roth 401(k) and Roth IRA options.

ERISA Fiduciary Duties

ERISA imposes two cornerstone duties on plan fiduciaries: the duty of prudence and the duty of loyalty.

• Duty of Prudence: Sponsors must conduct a thorough, documented evaluation when selecting or reviewing Roth service providers—recordkeepers, investment managers, and custodians. This involves requesting detailed proposals, comparing fees and services, and monitoring ongoing performance.
• Duty of Loyalty: Decisions must prioritize participants’ interests above any third‐party relationships. Conflicts of interest should be identified and mitigated, and any direct or indirect compensation arrangements with vendors must be disclosed and justified as reasonable.

Maintaining a written investment policy statement (IPS) that outlines the process for selecting, monitoring, and replacing plan investments—including Roth subaccounts—demonstrates adherence to fiduciary standards.

Fee and Expense Disclosures

Under 29 CFR 2550.404a-5, plan sponsors must provide two levels of fee transparency:

• Plan-Level Disclosures: A summary of administrative fees (e.g., recordkeeping, trustee, legal) and individual expenses (e.g., loan initiation, QDIA). This “black-and-white” breakdown shows participants what portion of their balance is applied to cover plan operations.
• Investment-Level Disclosures: For each fund or collective trust, sponsors must report the current expense ratio, gross and net performance over specified periods, and comparative benchmarks. Transaction costs and revenue sharing should be spelled out where applicable.

These disclosures empower participants to make informed decisions when allocating Roth contributions among plan–sponsored investment options.

Disclosure Timing and Frequency

ERISA and DOL regulations prescribe precise delivery schedules:

• Initial Disclosures: Participants must receive plan-level and investment-level fee information before making their first investment election.
• Annual Disclosures: A consolidated fee and performance report—covering the prior 12-month period—must be furnished at least once every 14 months.
• Quarterly Statements: Participants should see a statement with their account balance, individual fees charged, and investment performance at least quarterly (often integrated into the pension benefit statement).

Additionally, any material changes to fees, service providers, or plan provisions (such as adding a Roth option) should be communicated promptly, allowing participants to reassess their elections.

Regulatory Guidance

For a comprehensive walkthrough of ERISA’s reporting and disclosure rules, plan sponsors can consult the DOL’s Reporting and Disclosure Guide for Employee Benefit Plans. This resource covers everything from SPD requirements to blackout notice rules and sample disclosure language. By leveraging such guidance—and working closely with a qualified TPA—sponsors can ensure their Roth offerings remain both compliant and transparent.

Plan Implementation: Steps to Add a Roth 401(k) Option

Rolling out a Roth 401(k) feature requires careful coordination across legal, technical, and communication teams. Sponsors who follow a structured implementation roadmap—from document amendments to enrollment—can minimize hiccups and give participants a clear path to tax-diverse saving.

Plan Document Review and Amendment

Begin by confirming your plan document authorizes designated Roth contributions. Engage ERISA counsel or your TPA to draft the necessary amendment, explicitly adding Roth deferral language, subaccount rules, and updated RMD provisions. Adopt this amendment by the end of the plan year following the first Roth deferral—earlier if your plan year isn’t calendar-based—and restate the Summary Plan Description to reflect Roth features. Filing these updates on time preserves plan qualification and keeps participants informed of their new options.

System and Payroll Setup

Next, configure your payroll and recordkeeping systems to process after-tax Roth elections. Coordinate with your recordkeeper to enable Roth on the plan portal and with payroll to ensure deductions are coded correctly on employee W-2s. Before going live, run test elections in a pilot environment—verifying data transmission, tax withholding, and remittance workflows. Catching setup issues early prevents misposted contributions and reporting errors down the line.

Compliance Testing

Roth deferrals count in your ADP/ACP nondiscrimination testing just like pre-tax contributions. Review your testing strategy to ensure Roth elections don’t trigger corrective distributions. If testing results require action, establish protocols for returning excess contributions or making corrective employer contributions. Ongoing monitoring of deferral patterns helps sponsors identify potential failures early and maintain plan compliance.

Participant Enrollment and Communication

Finally, build an enrollment campaign that highlights the Roth option’s benefits and mechanics. Schedule an open enrollment period and distribute side-by-side comparisons of Roth versus traditional deferrals, including model projections for tax-free growth. Offer webinars, one-on-one meetings, or interactive calculators so employees can estimate take-home pay impacts and retirement income scenarios. Clear, frequent messaging—via email, intranet, and printed guides—ensures participants understand contribution limits, withdrawal rules, and how to make informed Roth elections.

Employee Education and Communication Strategies

Rolling out Roth options is only half the battle—making sure participants actually understand and use them is equally important. Clear, consistent education helps employees grasp the “why” behind after-tax contributions, compare Roth and traditional buckets, and see how an IRA might fit alongside their workplace plan. When participants feel confident about tax rules, withdrawal criteria, and long-term benefits, they’re more likely to make informed decisions and stick with their savings strategy.

Effective communication also shields sponsors from compliance headaches. Well-crafted materials and multiple touchpoints can reduce FAQ volumes, minimize distribution errors, and lower the risk of participants overlooking deadlines or misinterpreting plan features. The key is to mix high-level overviews with personalized insights, delivered through channels that employees actually use.

Developing Educational Materials

Start by building a concise resource library that participants can bookmark and revisit:

• Side-by-side comparisons: Create a one-pager that lines up Roth 401(k) vs. traditional deferrals vs. Roth IRA. Highlight take-home pay impacts, contribution limits, and withdrawal rules in an easy table.
• Glossary of terms: Offer a plain-English list covering jargon like “MAGI,” “5-year rule,” “qualified distribution,” and “catch-up contribution.” Define each term in two sentences or less.
• Scenario examples: Walk through real-world cases—such as a 35-year-old single contributor vs. a 55-year-old nearing retirement—to show how Roth and pre-tax buckets play out over time.
• FAQs and quick-reference cards: Anticipate the top questions—“Can I access my contributions early?” or “How does the employer match work?”—and deliver pithy answers on wallet-sized cards or digital PDFs.

By offering both printable guides and downloadable PDFs, you cater to employees who prefer paper and those who live on their phones.

Delivery Channels

No single channel reaches everyone, so mix and match:

• Webinars and in-person workshops: Host quarterly sessions with a retirement specialist who can present slides and take live questions. Record webinars for on-demand viewing.
• Intranet portals and resource hubs: Create a dedicated “Retirement Resources” page with links to videos, guides, and calculators. Use a clear folder structure so employees can find what they need in two clicks.
• Email campaigns: Roll out a drip sequence leading up to enrollment windows. Send three to five short emails—each focusing on a single theme, like “Maxing Out Your Roth IRA” or “Why Tax Diversification Matters.”
• Printed notices and posters: Place tear-off flyers in break rooms and bulletin boards with QR codes directing to your online hub.

By varying format and timing, you increase the odds that employees spot your message when they’re ready to act.

Personalized Tools

Generic advice only goes so far. Equip participants with interactive tools that speak to their unique situation:

• Retirement calculators: Embed calculators that compare after-tax and pre-tax contributions over different time horizons and tax brackets. Allow users to plug in their salary, current savings, and expected retirement age.
• What-if scenario planners: Offer a tool where employees can toggle variables—such as a salary increase, changes in tax rates, or shifting between Roth and traditional deferrals—to see how their take-home pay and nest egg grow.
• One-on-one consults: Partner with a financial advisor for limited, complimentary sessions during open enrollment. Personal meetings can clarify complex questions and drive participation.

Personalized insights often spark “aha” moments, motivating employees to commit to a savings plan.

Ongoing Engagement

Education doesn’t end after enrollment. Keep the conversation alive with timely reminders and updates:

• Periodic reminders: Send calendar invites and email nudges before enrollment deadlines and catch-up contribution periods.
• Contribution change alerts: After major life events—like a promotion or marriage—prompt employees to revisit their Roth vs. traditional election.
• Tax law updates: When legislation like SECURE Act adjustments or IRS limit changes occur, issue a plain-language summary of how it affects Roth contributions and RMD rules.
• Annual refreshers: Even seasoned savers benefit from a yearly “refresh” webinar or email digest that highlights best practices and plan changes.

By weaving education into the fabric of your benefit program, you help employees feel supported on their retirement journey—and reinforce your role as a proactive, participant-focused plan sponsor.

Compliance Monitoring and Best Practices

Maintaining a Roth 401(k) and Roth IRA offering isn’t a “set it and forget it” exercise. Pension rules, tax codes, and participant expectations shift frequently, and sponsors who adopt a proactive compliance stance reduce fiduciary risk and enhance plan value. By embedding structured reviews, rigorous recordkeeping, periodic benchmarking, and the right technology into day-to-day operations, sponsors can stay ahead of legislative updates, spot issues before they escalate, and demonstrate a commitment to participants’ long-term outcomes.

Ongoing Plan Review

A disciplined annual review of plan documents and amendments is your first line of defense. Start each year by confirming that your plan language reflects the latest statutory changes—SECURE Act 2.0’s RMD adjustments, Roth-only catch-up provisions for high earners, and emergency savings subaccount rules should all be captured. Equally important is revisiting the Summary Plan Description and Participant Notice templates to ensure any new features or deadlines are clearly communicated. Document every review: note the date, the decision-makers present, and the specific changes adopted. This audit trail not only supports fiduciary diligence but also smooths the path should the DOL or IRS request proof of timely amendments.

Recordkeeping and Audit Preparedness

Robust recordkeeping is the cornerstone of audit readiness. Maintain secure, indexed logs of all plan communications—fee disclosures, enrollment materials, and blackout notices—as well as participant elections and contribution changes. Store signed plan amendments, vendor proposals, and meeting minutes in a centralized repository, ideally with version control. If an auditor comes knocking, you can rapidly assemble the chronological narrative: when plan features were added, how participants were informed, and the precise dates contributions were remitted. Consistency and clarity in your records demonstrate that compliance isn’t an afterthought but an integral part of plan governance.

Benchmarking and Fee Reviews

Periodic benchmarking helps you gauge whether fees and investment performance remain competitive. At least once a year, compare your recordkeeper’s administrative charges and mutual fund expense ratios against industry surveys or peer-group data. Analyze whether any share classes can be replaced with lower-cost equivalents, and justify each selection through documented fiduciary reasoning. Similarly, review participant fund-mix trends and default-fund behavior to confirm investment options still align with evolving demographics and risk tolerances. A well-documented benchmarking process underscores that fee-level decisions are grounded in prudence, not habit.

Leveraging Technology

Modern TPA platforms and compliance tools can automate much of the heavy lifting. Automated dashboards can flag miss-dated disclosures, track amendment deadlines, and surface nondiscrimination testing anomalies. Workflow engines can route document approvals and generate audit logs for every action. Integrated data feeds sync payroll elections with recordkeeper uploads, reducing manual errors and late deposits. Even simple tools—shared calendars, task-management software, or cloud-hosted plan libraries—make it easier for sponsors to delegate responsibilities and maintain continuity across personnel changes. By embracing technology, sponsors not only cut down on routine administrative tasks but also gain real-time visibility into compliance health and can focus resources on strategic plan enhancements.

Common Plan Sponsor Questions about Roth 401(k) and Roth IRA

Plan sponsors field a lot of the same questions when introducing or maintaining Roth features. Below are concise answers to the inquiries that come up most often, helping you anticipate participant needs and streamline your communications.

Can Participants Contribute to Both a Roth 401(k) and a Roth IRA?

Yes—so long as they meet each account’s rules. Any employee eligible for your Roth 401(k) may defer up to the plan’s annual limit ($23,500 in 2025, plus a $7,500 catch-up if age 50 or older). Separately, an individual can fund a Roth IRA (up to $7,000 in 2025, plus a $1,000 catch-up if 50+), provided their MAGI falls below the phase-out thresholds ($146,000–$161,000 for single filers; $230,000–$240,000 for joint filers). In combination, under-50 savers could set aside $30,500 tax-diversified dollars in one year, rising to $39,000 for those aged 50 and over—an attractive strategy for maximizing after-tax savings.

How Do Catch-Up Contributions Work?

Catch-up contributions let older participants accelerate savings:

• Roth 401(k): Employees who turn 50 or older in 2025 may add an extra $7,500 on top of the $23,500 regular deferral, for a total of $31,000.
• Roth IRA: Contributors age 50+ have a $1,000 catch-up, lifting the 2025 limit from $7,000 to $8,000.

Keep in mind that IRA catch-ups still adhere to the MAGI phase-outs, while Roth 401(k) catch-ups face no income restrictions. Communicate these distinctions clearly to help participants plan appropriately.

What Are the Impacts of SECURE 2.0 on Roth Plans?

SECURE 2.0 introduced several Roth-specific tweaks that sponsors should highlight:

• Auto-Enrollment: New 401(k) plans must auto-enroll eligible workers at 3%–10% of pay, escalating by 1% annually up to a 10%–15% cap—Roth deferrals allowed.
• Roth-Only Catch-Ups: High-earning employees (those making more than $145,000, adjusted for inflation) must direct catch-up contributions into Roth accounts, locking in after-tax treatment.
• Emergency Savings Subaccounts: Sponsors can offer a Roth emergency savings feature—up to $2,500 per participant—that permits penalty-free withdrawals for unexpected expenses.

Review your plan design and enrollment materials to ensure these new defaults and subaccounts are properly integrated and explained.

How Are Plan Terminations and Rollovers Handled?

When a participant leaves your company or the plan terminates, Roth 401(k) balances enjoy flexible rollover options:

• Direct Rollover to a Roth IRA: Maintains the after-tax basis and tax-free growth potential, while eliminating future RMD requirements.
• Trustee-to-Trustee Transfer: Speeds the process and avoids mandatory withholding.

Plan sponsors must furnish timely distribution notices outlining these options and any deadlines. Updating your Summary Plan Description and distribution election forms to reflect Roth rollover procedures ensures participants know how to preserve their tax-advantaged status and avoid unintended penalties.

Final Thoughts for Plan Sponsors

Adding Roth 401(k) and Roth IRA options isn’t just about compliance—it’s an investment in your workforce. By offering tax-diverse savings vehicles, you give employees the flexibility to manage taxable income in retirement, build a tax-free legacy for their heirs, and feel confident that their benefits package stacks up in today’s competitive talent market.

That said, Roth features come with heightened fiduciary responsibilities. Clear communication about contribution limits, withdrawal rules, and the treatment of employer matches, paired with transparent fee disclosures and diligent RMD compliance, builds participant trust and shields sponsors from ERISA risk. A documented process for plan amendments, investment lineup reviews, and nondiscrimination testing demonstrates the prudence and loyalty your role demands.

You don’t have to go it alone. Partnering with an experienced third-party administrator and independent fiduciary can simplify plan design, streamline amendment deadlines, and elevate participant education. To explore tailored TPA and fiduciary solutions, visit Summit Consulting Group and see how their expertise can help you deliver Roth options that enhance retirement readiness while safeguarding your sponsor obligations.