Rob Krupa, CPC

Catch-up contributions explained: New Roth rules starting in 2026 Jul 20, 2026 10:00:00 AM As of 2026, high earners must make 401(k) catch-up contributions as Roth contributions. Learn what this SECURE 2.0 change means for you. Catch-up contributions give workers aged 50 and older a way to boost their retirement savings, especially if they couldn’t contribute to a 401(k) as much as they wanted to earlier in their career. As of 2026, a new rule changes how 401(k) catch-up contributions can be made. Workers aged 50+ earning $150,000 or more in the previous year must make catch-up contributions to a Roth 401(k) (after-tax) rather than a traditional account (pre-tax). The $150,000 income threshold is based on FICA wages, as seen in Box 3 of a W-2, and is based solely on income from their current employer. This is a significant shift for anyone aged 50+ who contributes to a 401(k), whether it’s sponsored by an employer or a solo 401(k) (with an underlying entity of S-Corp or C-Corp). To get to the bottom of it, we’ll define what catch-up contributions are—and then explore where this new rule comes from, what it means, and how employees and employers can prepare. What are contribution limits? Since 401(k)s offer tax advantages, the IRS limits how much you can contribute. Catch-up contributions let workers age 50 or older put extra money into their retirement accounts beyond the standard IRS annual limits. In 2026, eligible workers of any age can contribute up to $24,500 to a 401(k) plan. Those aged 50 or older can contribute an additional $8,000 as a catch-up. Those aged 60-63 can contribute up to $11,250 as a catch-up. For those interested in saving beyond the 401(k) contribution limits, you can also contribute to an Individual Retirement Account (IRA), as well, which has separate limits and phase-outs. How the new catch-up contribution rule came about This rule is part of the SECURE 2.0 Act, a law passed in late 2022 that’s aimed at strengthening retirement savings in the US. The SECURE 2.0 legislation included more than 90 provisions, ranging from automatic enrollment requirements to changes in required minimum distributions (RMDs). Learn more about SECURE 2.0 here. Understanding the tax implications of Roth contributions Contributions made into a traditional 401(k) account are made with “pre-tax” dollars, meaning you make the contribution first, lowering your taxable income when the government assesses your income tax. When the money is taken out at retirement, it will be taxed (both the money put into the account, as well as any earnings). Contributions made into a Roth account are made with “after-tax” dollars, meaning the government assesses your income tax first, then you make your contribution. By requiring higher-income earners to put catch-up contributions into Roth accounts, the IRS collects tax revenue up front. When the money is taken out at retirement, it will not be taxed (neither the money you put in, nor any earnings) as long as the individual is at least 59.5 years old and the account has been held for five years. What are the benefits of Roth catch-up contributions? While some may see the loss of the pre-tax option as a disadvantage, there are also potential upsides to Roth contributions: Tax-free growth: Earnings grow tax-free, and qualified withdrawals in retirement are not taxed. Tax diversification: Having both pre-tax and Roth savings gives retirees flexibility to manage taxable income in retirement. Future tax planning: Employees who expect to be in a higher tax bracket in retirement may benefit from paying taxes now. These benefits make Roth savings an important tool in long-term retirement planning. Why the new Roth catch-up rule matters for employees and employers For those contributing to a 401(k) plan, this rule could change how their retirement savings are taxed. For employers offering a 401(k), this rule may require: Updates to plan design to confirm a Roth 401(k) option is available. Payroll adjustments to track eligible employees based on income. Employee education to explain the new requirements and the differences between traditional and Roth contributions. Workers approaching age 50 should keep a few things in mind: Start planning now: If you’re a high earner, understand that catch-up contributions must be made into an after-tax Roth account. Adjust expectations: Your take-home pay may look different once Roth contributions get going. How Betterment at Work is preparing for the Roth catch-up rule At Betterment at Work, we’re here to help employers and their teams plan for a secure financial future. Betterment will email those aged 50+ throughout the year, reminding them how to make catch-up contributions in line with the new rule. Workers aged 50+ will also see a reminder about the new rule within their account. If you think you’ve made catch-up contributions into a traditional/pre-tax account when they should have been made into a Roth account, you should do two things: Fix your contribution settings so all future contributions are made into a Roth account. Contact your employer, who will be able to confirm and correct contributions you’ve already made into your traditional account and move them into your Roth account. In Q1 2027, Betterment at Work will have tools to convert catch-up contributions to a Roth account if they were incorrectly made into a traditional account. Employers can get more details in Betterment’s FAQs, and read up on SECURE legislation here. Savers can browse additional retirement topics in our financial planning hub.

401(k) automatic enrollment: Benefits for employers and employees Apr 15, 2026 2:30:00 PM SECURE 2.0 mandates automatic enrollment for newer plans. Let’s look at the benefits for your business and your employees. Let’s take a look at how the new default for 401(k) plan enrollment can be a win-win for your business and your employees. What does SECURE 2.0 require for 401(k) automatic enrollment? Under the SECURE 2.0 Act, automatic enrollment is a requirement for plans with an initial effective date on or after December 29, 2022. The provision went into effect on January 1, 2025. The provision: Requires plans to automatically enroll employees at a default rate between 3% and 10%. Must offer participants who are automatically enrolled the ability to request a withdrawal of their contributions within 90 days of their first contribution. Must automatically increase the default contribution rate by 1% after each completed year of participation until it reaches at least 10% (but no more than 15%) of compensation, unless the participant opts out or elects a different rate. As before, must allow employees to change their contribution rate or opt out of the plan at any time. If your plan was created on or after December 29, 2022 and isn't yet compliant, now is the time to act. It can save you operational stress while showing your employees that you care about their savings. Keep in mind: Certain plans are exempt from this requirement, including plans sponsored by businesses with fewer than 10 employees, businesses that have been in existence for less than three years, church plans, and governmental plans. Learn more How automatic 401(k) enrollment benefits employers: Tax credits, participation, and talent retention Automatic enrollment requires some upfront implementation, but there are ongoing benefits to your business as a result. Increased plan participation: According to the IRS, automatic enrollment can increase employee participation, which may result in various positive outcomes. More plan participation could result in increased tax deductions if you offer employer-matching contributions. Higher participation may increase the likelihood of your plan passing nondiscrimination testing since, by default, automatic enrollment does not favor specific employees. Help attract and retain talent: A 401(k) plan with high participation could prove to be a crucial aspect in building a strong workforce. In our 2025 Retirement Readiness survey of 1,000 full-time employees, more than half (57%) said better financial benefits would entice them to leave their current job. Younger employees (Gen Z: 65%, Millennials: 64%) are most likely to switch jobs based on financial benefits, and about two-thirds of employees with significant anxiety (69%) or moderate anxiety (61%) over finances would do the same. Automatic enrollment tax credit: Adding automatic enrollment, even if your plan isn’t mandated to, can provide you with a tax credit. Employers that add automatic enrollment to a new or existing plan can take advantage of a $500 tax credit. Employers can claim this tax benefit for up to three tax years if they have 100 or fewer eligible employees. Embracing automatic enrollment can yield positive results for your business, but as we’ll see next, the results may be even more meaningful for the financial lives of your employees. How automatic enrollment improves retirement savings outcomes for employees Simply put, automatic enrollment makes it easier for employees to save for retirement. And the data speaks for itself: Recent industry data reported that that plans with automatic enrollment tripled the participation rate—to 91%—among new hires. Three years in, auto-enrollment plans maintained strong retention—92% of those enrolled automatically were still active contributors, compared to just 29% in voluntary plans. That can be life-changing for many people who may have never otherwise started saving. EACA vs. QACA: automatic enrollment plan options under SECURE 2.0 In 2025, the SECURE 2.0 Act made Eligible Automatic Contribution Arrangement (EACA) the default for all 401(k)s created December 29, 2022 or later, again with a few exceptions. Auto-enrollment requires employees’ deferral rates must be set between 3% and 10%. Newly auto-enrolled participants must also have a 90-day window to request their funds back. You can also consider a Qualified Automatic Contribution Arrangement (QACA) by way of a Safe Harbor 401(k) plan. That means you’ve already committed to, among other things, a specific threshold of employer contributions. Here are options for newly created plans: All plans with effective dates of December 29, 2022 or later Eligible Automatic Contribution Arrangement (EACA) Qualified Automatic Contribution Arrangement (QACA) Employees enrolled at preset contribution rate between 3% and 10% ✓ ✓ Employees can opt out or change contribution rate ✓ ✓ Employees can request refunds of deferrals within first 90 days ✓ ✓ Requires employer contributions (i.e., Safe Harbor) and accelerated vesting schedule ✓

Safe Harbor vs. traditional 401(k) plans: Which is right for you and your Employees? Jun 30, 2023 2:33:00 PM Weigh the pros and cons of each carefully before making a decision for your company. 401(k) lingo can sound like a foreign language. There's "MEPs" and "PEPs," “QDIAs” and “QACAs.” But for now, let's focus on Safe Harbor 401(k) plans. If you’ve concluded that a 401(k) is right for your company, the next decision you face is what kind of 401(k) plan. They come in two primary flavors, with the Safe Harbor variety providing an alternative to the traditional 401(k) plan. Does the “Safe Harbor” name mean the traditional route is riskier? Not necessarily. There's a host of pros and cons to each plan type. The best fit for your company depends ultimately on your unique situation. Keep reading to try on a Safe Harbor for size. Editor’s note: If you’re reading this during the first half of the year, with eyes on possibly implementing a Safe Harbor plan the following year, time is of the essence! Learn more about Safe Harbor setup deadlines below. Table of contents Safe Harbor 401(k) plans in a nutshell How nondiscrimination testing can trip up small businesses Safe Harbor may make sense for you if … Safe Harbor setup deadlines What Betterment at Work brings to your Safe Harbor 401(k) setup Safe Harbor 401(k) plans in a nutshell Safe Harbor plans offer companies an enticing deal. Contribute to your employees’ 401(k)s, the federal government says, and we’ll give you a free pass on most compliance testing. There's plenty more nuance to them of course (keep reading for that), but this is the key distinction. In traditional 401(k) plans, employer contributions are allowed but not required—and you face the added burden of annual testing. As with all things in life, Safe Harbor plans come with tradeoffs. Matching your employees’ contributions—or contributing regardless of whether they do through what’s called a nonelective contribution—is great for your employees' financial wellbeing, but it could also increase your overall employee budget by 3% or more depending on the size of your contribution. How nondiscrimination testing can trip up small businesses Federal law requires annual nondiscrimination tests, which help ensure 401(k) plans benefit all employees—not just business owners or highly compensated employees (HCEs). Because the federal government provides significant tax perks through 401(k) plans, it wants to make sure these benefits don’t more heavily favor high earners. The three main nondiscrimination tests are: Actual deferral percentage (ADP) test—Compares the average salary deferrals of HCEs to those of non-highly compensated employees (NHCEs). Actual contribution percentage (ACP) test—Compares the average employer matching contributions received by HCEs and NHCEs. Top-heavy test—Evaluates whether a plan is top-heavy, that is, if the total value of the plan accounts of “key employees” is more than 60% of the value of all plan assets. The IRS defines a key employee as an officer making more than $230,000 (indexed), an owner of more than 5% of the business, or an owner of more than 1% of the business who made more than $150,000 during the plan year. In practice, it’s easier for large companies to pass the tests because they have a lot of employees at many different income levels contributing to the plan. If, on the other hand, even just a few HCEs at a small-to-midsize business contribute a lot to the plan, but the lower earners don’t, there’s a chance the 401(k) plan will not pass nondiscrimination testing. You may be wondering: “What happens if my plan fails?” Well, you’ll need to fix the imbalance by either returning a portion of the contributions made by your highly compensated employees or by increasing the contributions of your non-highly compensated employees. If you have to refund contributions, affected employees may fall behind on their retirement savings—and that money may be subject to state and federal taxes! If you don’t correct the issue in a timely manner, there could also be a 10% penalty fee and other serious consequences. Failing these tests, in other words, can be a real pain in the pocketbook. Safe Harbor may make sense for you if … Every company is different, but here’s a list of employer characteristics that tend to align best with the plan type. Your staff count is in the dozens, not hundreds. Not all small businesses are created equal. In general, however, the smaller your staff count, the more likely it is that the 401(k) contributions of high earners could outweigh those of their lower-compensated peers. If that happens under a traditional 401(k) plan, you’re at a higher risk of failing nondiscrimination testing. Your staff includes a high percentage of part-time and/or seasonal employees. For companies with more fluid staff makeups, the same elevated risk of failing nondiscrimination testing applies. These types of workers are typically allowed to participate in plans yet often don’t contribute, thus negatively impacting testing. Your company has previously failed ADP or ACP compliance tests. This one’s a no-brainer. If traditional 401(k) plans have given you testing fits in recent years, switching to a Safe Harbor plan could help avoid these costly tripups. Your company’s previous plans have been deemed “top-heavy.” Similar to the above, if you haven’t recently failed an ADP or ACP test as part of a Traditional 401(k) plan, but your plan was deemed “top-heavy,” you may have a higher risk of failing in the future. Your company has consistent and adequate cash flow. Safe Harbor 401(k) plans offer employees a pretty sweet deal. The company kicks in a minimum of 3-4% of their salaries, either contingent on a matching contribution or not (see: nonelective). That money vests immediately, too, which means employees can quit tomorrow and keep it. This commitment to your workforce’s retirement savings is the key cost consideration of Safe Harbor plans. It’s why we typically don’t recommend them for companies with less predictable cash flow year-over-year. You’d rather avoid administrative burdens. Take it from us: even successful compliance testing can be a hassle. And failures? They can lead not only to the aforementioned penalties but to uncomfortable conversations with impacted employees. They’ll need explanations for why their contributions are being returned, and they ultimately may not be able to maximize their 401(k). If you prefer peace-of-mind over these compliance worries, consider the Safe Harbor option. Safe Harbor setup deadlines If you’re strongly considering setting up a Safe Harbor plan or adding a Safe Harbor contribution to your existing plan, here are a few key deadlines you need to know: Starting a new plan For calendar year plans, October 1 is the final deadline for starting a new Safe Harbor 401(k) plan. But don’t cut it too close—you’re required to notify your employees 30 days before the plan starts—and you’ll likely need to talk to your plan provider before that. If we’re fortunate enough to serve in that role for you, that means we’ll need to sign a service agreement by August 1. Adding Safe Harbor to an existing plan If you want to add a Safe Harbor match provision to your current plan, you can include a plan amendment that goes into effect January 1 so long as employees receive notice at least 30 days prior. At Betterment, the deadline for you to request this amendment is October 31. Thanks to the SECURE Act, plans that want to become a nonelective Safe Harbor plan—meaning the employer contributes regardless of whether the employee does—have newfound flexibility. An existing plan can implement a 3% nonelective Safe Harbor provision for the current plan year if amended 30 days before the close of the plan year. Plans that decide to implement a nonelective Safe Harbor contribution of 4% or more have until the end of the following year in which the plan will become a Safe Harbor. Communicating with employees Every year, eligible employees need to be notified about their rights and obligations under your Safe Harbor plan (except for those with nonelective contributions, as noted above). The IRS requires notice be given between 30-90 days before the beginning of the plan year. What Betterment at Work brings to your Safe Harbor 401(k) setup An experienced plan provider like Betterment at Work can bring a lot to the table: Smooth onboarding | We guide you through each step of the onboarding process so you can start your plan quickly and easily. Simple administration | Our intuitive tech and helpful team keep you informed of what you need to do, when you need to do it. Affordability | We’re fully transparent about our pricing so no surprises await you or your employees. Investing choice | Give your employees access to a variety of low-cost, expert-built portfolios. Ready to get started – or simply get more of your questions answered? Reach out today. Or keep reading to learn more about whether the other big consideration for your 401(k) plan—auto-enrollment—is right for your situation.