The delayed, 2026 effective date for changes to Designated Roth Accounts looms large…and not everyone will welcome the rather drastic change. The delayed effective date is good news and gives planners some time to figure out how to make it work.
While the option is probably a good one for higher-income employees, it does not mitigate the administrative hassles. Nonetheless, if you operate a 401(k) plan for employees, you are probably well-advised to get started sooner rather than later on procedures and plan amendments, if necessary, to achieve compliance with the changes:
- Employers must identify which employees have wages above the $145,000 threshold and must provide that information to plan administrators.
- Procedures must be established to restrict catch-up contributions by affected employees to designated Roth accounts.
- Details about how the new deal works must be communicated to affected employees.
- Some employer plans don’t currently offer the designated Roth account option, which affected employees may demand.
Without such amendments, affected employees will be unable to make any catch-up contributions. But with such amendments, all employees would have the option of contributing to designated Roth accounts, which will create more administrative complications.
Until the January 1, 2026 effective date for the designated Roth account catch-up contribution change you can ignore the change and continue making catch-up contributions.
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