A Roth 401(k) gives employees a way to save for retirement using after-tax dollars. Unlike traditional 401(k) contributions, Roth contributions do not reduce the employee’s current federal taxable wages. In return, qualified distributions in retirement can generally be taken tax-free.

For employers, offering a Roth 401(k) involves more than adding another deduction to payroll. Traditional and Roth contributions must be tracked separately, annual contribution limits must be monitored, and new SECURE 2.0 rules make 2026 especially important for certain employees making catch-up contributions.

• The 2026 employee 401(k) elective-deferral limit is $24,500. 

• The general age-50+ catch-up limit is $8,000. 

• Employees ages 60–63 can have a higher 2026 catch-up limit of $11,250. 

• Traditional and Roth 401(k) contributions share the same combined employee limit. 

• Certain higher-paid employees must make 2026 catch-up contributions on a Roth basis. 

• Employee Roth 401(k) contributions remain subject to federal income tax, Social Security, and Medicare. 

• Roth 401(k) accounts no longer have lifetime RMDs for the original account owner.

What Is a Roth 401(k)?

A Roth 401(k) is a designated Roth account offered through an employer-sponsored retirement plan. 

Employees make Roth contributions through payroll using money that has already been included in taxable income. If the distribution later meets the qualified-distribution requirements, both the contributions and earnings can generally be withdrawn tax-free. 

The IRS generally requires a qualified Roth 401(k) distribution to satisfy the five-tax-year participation rule and occur after age 59½, disability, or death. (irs.gov) 

Unlike a Roth IRA, a Roth 401(k) does not have an income-based eligibility cutoff for employee contributions. An eligible employee can participate regardless of income, subject to the employer plan and applicable contribution limits. (irs.gov) 

2026 Roth 401(k) Contribution Limits

For 2026, the regular employee elective-deferral limit for most 401(k) plans is $24,500, up from $23,500 in 2025. (irs.gov) 

The $32,500 amount includes the normal $8,000 catch-up contribution.

Employees who turn 60, 61, 62, or 63 during 2026 can have a larger catch-up limit of $11,250, bringing their potential employee deferral total to $35,750.

Traditional and Roth contributions do not receive separate $24,500 limits.

For example:

• Traditional 401(k): $14,500
• Roth 401(k): $10,000
• Combined: $24,500

The employee has reached the regular 2026 elective-deferral limit.

How Does a Roth 401(k) Affect Payroll?

This is one of the most important differences employers need to understand.

Suppose an employee earns:

• Gross wages: $3,000

and contributes:

• Roth 401(k): $300

Because the Roth contribution is made after federal income tax, the $300 does not generally reduce federal taxable wages.

Federal income-tax withholding is therefore still based on the applicable $3,000 wage amount, subject to the employee’s withholding information.

The Roth contribution is also generally included in wages subject to:

• Social Security
• Medicare

Traditional 401(k) deferrals receive different federal income-tax treatment. Traditional elective deferrals generally reduce federal income-tax wages while remaining subject to Social Security and Medicare taxes.

Traditional 401(k) vs. Roth 401(k)

This payroll distinction is why employers should not treat traditional and Roth deductions as the same deduction type.

What Is the New 2026 Roth Catch-Up Rule?

One of the most important SECURE 2.0 changes begins in 2026.

Employees who are eligible for catch-up contributions and had more than $150,000 in prior-year FICA wages from the employer sponsoring the plan may be required to make their catch-up contributions on a Roth basis. (irs.gov)

For 2026, the employer looks generally at applicable 2025 FICA wages from the plan sponsor. 

Example

Suppose an employee:

• Is age 55 in 2026
• Had $165,000 in applicable 2025 FICA wages from the employer
• Contributes more than the regular $24,500 limit in 2026

The amount treated as a catch-up contribution generally must be designated as Roth under the new rule.

IRS guidance ties this threshold to applicable prior-year FICA wages, generally corresponding to wages used for Social Security purposes.

This makes payroll coordination especially important because employers need to identify which catch-up-eligible employees are subject to Roth treatment.

Can Employers Make Roth Matching Contributions?

Yes, depending on the plan.

SECURE 2.0 allows a plan to permit employees to designate certain employer matching or nonelective contributions as Roth contributions. These contributions generally must be fully vested when allocated before they can receive Roth designation. (irs.gov) 

This is different from a normal employee Roth payroll deduction.

A designated Roth employer matching or nonelective contribution is generally included in the employee’s income for the year it is allocated, but the IRS says these amounts are generally not subject to federal income-tax withholding, Social Security, or Medicare withholding.

Employers should coordinate with their plan administrator before offering this option.

How Are Roth 401(k) Contributions Reported on Form W-2?

Employee Roth 401(k) elective deferrals are reported differently from traditional 401(k) deferrals.

For a regular Roth 401(k) employee contribution:

• Box 1 generally includes the contribution in taxable wages.
• Box 3 includes the applicable Social Security wages.
• Box 5 includes the applicable Medicare wages.
• Box 12, Code AA reports designated Roth contributions under a 401(k) plan.

Traditional 401(k) elective deferrals generally use Box 12, Code D and are generally excluded from Box 1 while remaining included in Boxes 3 and 5.

Designated Roth employer matching and nonelective contributions have different reporting treatment and are generally reported on Form 1099-R with Code G rather than being handled exactly like employee Roth elective deferrals. (irs.gov) 

Do Roth 401(k)s Have Required Minimum Distributions?

Not during the original account owner’s lifetime under current law.

For 2024 and later years, designated Roth accounts in 401(k) and 403(b) plans are generally not subject to lifetime RMDs while the account owner is alive. (irs.gov) 

Beneficiaries can still be subject to required-distribution rules after the account owner dies.

This is an important change from older Roth 401(k) rules.

Benefits of Offering a Roth 401(k)

Offering both traditional and Roth options gives employees more flexibility in how they save for retirement.

Employees may benefit from:

• Choosing between current tax savings and after-tax Roth contributions
• Building both pre-tax and Roth retirement balances
• Potentially receiving tax-free qualified Roth distributions later
• Contributing to a Roth workplace account without Roth IRA income limits
• Splitting contributions between traditional and Roth options within the combined annual limit

For employers, adding a Roth option can make the retirement plan more flexible for employees with different financial and tax-planning preferences.

How Employers Can Implement a Roth 401(k)

Employers considering a Roth option should coordinate with the plan provider and payroll team.

A practical process includes:

1. Confirm the plan allows designated Roth contributions.
2. Set up separate traditional and Roth payroll deduction types.
3. Track the combined annual employee contribution limit.
4. Identify employees subject to the 2026 Roth catch-up requirement.
5. Determine whether Roth employer matching or nonelective contributions will be offered.
6. Track Roth and traditional contributions separately for year-end reporting.
7. Review Form W-2 reporting, including Code AA for employee Roth 401(k) deferrals.

Employees should also receive clear information about how traditional and Roth contributions affect their current paycheck differently.

How SecurePayStubs Displays Roth 401(k) Deductions

SecurePayStubs allows employers to enter retirement deductions and display them alongside employee earnings, applicable taxes, net pay, and YTD deduction amounts.

When setting up a pay stub, employers should distinguish between traditional and Roth 401(k) contributions because the two deductions affect federal taxable wages differently:

• Traditional 401(k) → may reduce federal income-tax wages.
• Roth 401(k) → does not reduce federal income-tax wages.

Employers remain responsible for employee eligibility, contribution elections, annual limits, catch-up rules, plan administration, and year-end tax reporting.

Conclusion

A Roth 401(k) gives employees another way to build retirement savings, but employers need to understand the payroll and reporting differences before offering it. For 2026, the regular employee contribution limit is $24,500, catch-up limits have increased, and certain employees with more than $150,000 of prior-year FICA wages may be required to make catch-up contributions on a Roth basis.

Employers should also distinguish Roth from traditional payroll deductions, understand the updated rules for Roth employer contributions, and report employee Roth 401(k) deferrals correctly using Form W-2 Code AA.