Financial Planning and Analysis

What Is a Roth 401(a) and How Does It Work?

Understand the Roth 401(a), an after-tax savings feature for public sector employees. Learn how its unique structure affects your contributions and distributions.

A Roth 401(a) is a specific feature within a 401(a) retirement plan that allows employees to make contributions with after-tax dollars. These plans are offered to employees of public schools, colleges, universities, government agencies, and certain non-profit organizations. The “Roth” designation signifies that contributions are not tax-deductible in the present, but qualified withdrawals in retirement are received completely tax-free. Instead of deferring taxes until retirement, the Roth option involves paying taxes on the contributed income upfront, which can be advantageous for individuals who anticipate being in a similar or higher tax bracket during their retirement years.

Eligibility and Plan Structure

A 401(a) plan is a tax-advantaged retirement savings plan established by an employer. The employer designs the plan and determines specific eligibility rules, such as minimum age or service requirements.

The Roth component of a 401(a) is not a standalone account but a feature within the plan. An employer must explicitly amend their 401(a) plan document to permit Roth contributions. If the plan sponsor has not adopted this provision, employees do not have the ability to make after-tax Roth contributions.

When a plan does offer a Roth option, eligible employees can choose how to direct their contributions. They may be able to designate all of their employee contributions as Roth, a portion as Roth and a portion as traditional pre-tax, or all as traditional pre-tax. Employees interested in this feature should consult their plan documents or contact their human resources or benefits department to confirm if their specific plan allows for designated Roth contributions.

Contribution Rules and Limits

Contributions made by an employee to a Roth 401(a) account are always made on an after-tax basis. This means the contributed amount is included in the employee’s gross income for the year and is subject to federal and, where applicable, state and local income taxes. The funds are deducted from an employee’s paycheck after taxes have been calculated and withheld.

The Internal Revenue Service (IRS) sets annual limits on the amount an employee can contribute to their workplace retirement plans. For 2025, the elective deferral limit for employees under age 50 is $23,500. This limit is an aggregate total that applies across all of an individual’s retirement plans, including 401(a), 401(k), and 403(b) plans.

For participants age 50 and over, an additional “catch-up” contribution is permitted. In 2025, this amount is $7,500. For individuals aged 60, 61, 62, and 63, a higher catch-up amount of $11,250 is available, provided their employer’s plan has adopted this provision.

A significant aspect of 401(a) plans involves employer contributions. Regardless of whether an employee chooses to make Roth contributions, any money contributed by the employer is always made on a pre-tax basis. These employer funds are deposited into a separate traditional, pre-tax sub-account within the employee’s overall 401(a) plan. They are not placed into the designated Roth account and will be taxable upon withdrawal.

Taxation of Withdrawals

The tax treatment of withdrawals from a Roth 401(a) depends on whether the distribution is “qualified.” A qualified distribution is completely tax-free, meaning neither the original contributions nor any investment earnings are subject to income tax. To be considered qualified, a distribution must meet two specific conditions set by the IRS.

The first condition is the five-year holding period. The clock for this five-year period starts on January 1 of the first year in which the employee makes a designated Roth contribution to the plan.

The second condition requires that the withdrawal is made for a specific reason. The account holder must be at least 59½ years old at the time of the distribution. Alternatively, a distribution will be considered qualified if it is made to a beneficiary after the account holder’s death or if the account holder becomes totally and permanently disabled.

A “non-qualified distribution” occurs when a withdrawal fails to meet both of the required conditions. The portion of the withdrawal that represents the employee’s original after-tax contributions is returned tax-free. The portion of the withdrawal attributable to investment earnings, however, is subject to ordinary income tax. If the account holder is under age 59½, these taxable earnings may also be subject to a 10% early withdrawal penalty. Beginning in 2024, designated Roth accounts in employer plans are no longer subject to required minimum distributions (RMDs) for the original account owner.

Rollovers and Portability

When an employee leaves their job, the funds within a Roth 401(a) can be moved through a process called a rollover. The most common and direct rollover path for a Roth 401(a) balance is to a Roth IRA. This transaction, known as a direct rollover, moves the assets from the employer’s plan to the new account without the employee taking possession of the funds.

Another option is to roll the Roth 401(a) funds into a designated Roth account in a new employer’s retirement plan, such as a Roth 401(k) or Roth 403(b), if the new plan accepts such rollovers. When considering a rollover, it is important to understand how the five-year holding period for qualified distributions is treated.

If rolling funds to another employer’s Roth plan, the holding period is determined by whichever of the two accounts was established first. However, Roth employer plans and Roth IRAs have separate and independent five-year clocks. When rolling funds to a Roth IRA, the holding period from the 401(a) does not carry over; the withdrawal will be subject to the Roth IRA’s own five-year period.

Any pre-tax money in the 401(a) plan, such as employer matching contributions, must be handled separately. These funds cannot be rolled into a Roth IRA or another Roth employer plan. The standard procedure is to roll the pre-tax balance into a traditional IRA or the traditional pre-tax portion of a new employer’s retirement plan.

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