A Roth 401k Tax Surprise?
What we mean when we say “Roth 401k tax surprise,” is that contributing to a Roth 401(k) at work COULD create unexpected taxable income, through the employer match. While employee making Roth 401k contributions knows their contributions are going into the plan as “post tax,” or after-tax, the employer match may be treated as taxable income. This could potentially increase current-year taxable income, even though the match dollars flow directly into a Roth 401(k). This would indeed be a Roth 401k tax surprise, and we hate surprises.
To be clear, we are not saying something has to change. We want folks to be aware of this nuance. Employer matches might remain as-is (meaning, pre-tax) for the foreseeable future, and those wanting to contribute “all Roth” may just need to accept an employer match may come with a tax bill. It’s still additional compensation. .
Under the SECURE 2.0 Act (in 2026), if your FICA wages are $150,000+ (indexed for inflation), required catch-up contributions must be made as Roth contributions. This means you may be paying current tax now.
We briefly look at 401k plans at Johnson & Johnson, Prudential, and ADP, three large employers in New Jersey.
Their current employer match is considered pre-tax. Companies have until December 2026 to implement Roth matching mechanics.
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Transcript for A Roth 401k Tax Surprise?
I hate surprises.
Especially surprises that wind up costing me money.
And I want to point something out to you – if you contribute to a Roth 401k at work.
See, if you do contribute to one of these Roth retirement plans, like a Roth 401k, you may want to pay particular attention.
As this could result in more taxable income than you expected.
And since we’re talking about it now, it won’t be a surprise for you down the road!
It may be one of these unplanned consequences for many folks with Roth 401ks.
Now that employers have been permitted to offer a Roth 401k, more and more participants are taking advantage of contributing this way, especially younger participants.
And that is awesome.
It’s becoming more and more popular every single year.
You pay tax, like a Roth IRA, you pay tax before the contribution even goes into the account.
And in theory, there’s no tax on the way out – down the road in the future.
But there’s a couple of wrinkles I don’t think a lot of folks planned on.
If you get an employer match to a Roth 401k, right now, looks like it’s taxable income.
What you, the employee, puts in is always going to be after tax.
But the employer’s matching contribution to the Roth 401k MAY wind up being pre-tax income.
(taxed as income)
So that would technically ADD to the worker’s (or to the participant’s) current year taxable income.
I don’t think that this is what the geniuses in Congress – or the folks who developed this idea…… I really don’t think that’s what they intended to happen.
You, as the participant, may actually pay MORE tax, tax on income that you didn’t receive.
The match went straight into your Roth 401k.
So you didn’t receive the income, but you have to report it and pay taxes on it.
And just like they say on late night TV, “But wait, there’s more.”
As part of the SECURE 2.0 Act, starting this year in 2026, the catch-up contributions have to go in as Roth contributions.
Do you see where I’m going with this?
Meaning, if you have FICA wages of $150,000 a year or more (and that number goes up with inflation in the future).
But if you’ve got FICA wages over $150,000 and you’re in your 50s, so you’re between the ages of 50 and 59, if you want to do a catch-up contribution…… that’s NOT the stuff that comes out, that you put on top of a hamburger!
That’s catch-up.
You can contribute up to $8,000 per year.
It’s got to go in as a Roth contribution.
That’s taxable income that you’re going to be dinged for.
So think about this.
Your entire contribution to your 401k may ALL go in as pre-tax dollars.
But the catch-up part of the contribution, that’s going in as Roth dollars.
You’re going to be paying tax on it now, not later.
So that’s for folks age 50 to 59.
What if you’re older?
Well, if you’re 60, 61, 62, 63…… the maximum catch-up, also called the super catch-up contribution, is right now $11,250.
That number goes up with inflation in the future.
So three of the larger employers here in the state of New Jersey, uh, come to mind.
If you participate in the 401k at Johnson & Johnson, Prudential Insurance, or Automated Data Processing, ADP……
If you participate in these 401ks, well, let’s say something in general about all three of them.
They all offer 401ks.
They all offer a Roth 401k option in their plan.
They all offer, at least now in July 2026, employer matching contributions.
But (again, as of July 2026), those matching contributions are still going in as pre-tax dollars.
No matter how you contribute to the plan.
Companies have until the end of this year, December 2026, to figure out the mechanics of how they’re going to make these matching contributions to a Roth 401k.
There’s an article that we’ll link to below, in the show notes, which may shed a little more light on this.
But look, if you’re unsure if you should be contributing to a retirement plan on a pre-tax basis, or should you be making Roth contributions, watch this video next for some answers…….
