Can an Employer Contribute to an Employee's Roth IRA?

Can an employer contribute to an employee’s Roth IRA? Yes and No.

Generally, employers cannot contribute directly to an employee’s IRA. But they can facilitate contributions by opening such Roth-style accounts so that employees can put money in them. And then, employees can enjoy an employer match in other accounts within their plan. However, if you are self-employed, you can create your own Roth IRA and contribute to it directly.

Roth IRAs for Individuals

Individual retirement accounts (IRAs) enable people to save and invest some of their monies while enjoying specific tax benefits. Some are funded by pre-tax dollars, while after-tax dollars fund others.

You can use after-tax dollars to fund a Roth IRA. And you can open them whether you are employed or not, even if you have other employer-sponsored retirement accounts. Then both the earnings and contributions will grow tax-free. Also, you can withdraw them penalty- and tax-free after you reach ​59.5 years​.

That said, Roth IRAs are more suitable as supplementary retirement accounts. That’s because you have to fund them with after-tax dollars, thus maintaining a higher gross income in the year of contribution. Also, they have strict limits on how much you can earn or contribute, which limits how much you can set aside for the future.

Currently, you can contribute up to ​$6,000 a year to a Roth account, or ​$7,000​ if you are ​50 years​ or older. But you can only contribute up to the set limit if you earn a modified AGI of less than ​$198,000 when filing jointly or less than ​$125,000​ when filing singly.

Therefore, remember these limits when contributing to a Roth IRA individually. And also, bear in mind that you cannot match Roth IRA contributions as an individual.

Employer-Sponsored Roth Accounts

If you are employed or self-employed, things will be different regarding Roth accounts for retirement. There exist designated separate Roth accounts within 401(k), 403(b) and governmental 457(b) retirement plans.

How Employer-Sponsored Roth Accounts Work

If your employer opts for this account, you can save more for retirement using after-tax funds. And in case your plan does not offer the Roth option, your plan sponsor must amend it for you to contribute to it.

When your employer opts to include the Roth feature, it must create a new account for you that is separate from your traditional retirement accounts funded using pre-tax dollars. But unlike the Roth IRA, you can contribute all of your salary deferrals into the Roth account your employer sponsors.

That means you can contribute up to ​$19,500 to your employer-sponsored Roth if you are ​50 years​ or younger and up to ​$26,000​ if you are older than that.

Another added advantage of such designated accounts is that they are not subject to the modified gross income limits. You can contribute to them regardless of how much you earn, provided you don’t exceed the contribution limitations.

Limitations of Employer-Sponsored Roth Accounts

While employer-sponsored Roth accounts set a higher contribution limit, they still have several limitations. Below are some of them.

  • SARSEP or SIMPLE IRA plans do not allow for designated Roth accounts.
  • You cannot use a Roth IRA match consisting of employer contributions to fund Roth account investments; employers can only contribute them to another account within the plan. And when you withdraw the match, you must pay taxes before enjoying the remainder.
  • One cannot use profit-sharing contributions directly into a Roth account.

Final Thoughts on Roth IRAs

No employer can force you to contribute to a designated Roth IRA. But if you are interested in saving more for retirement, your employer can facilitate your goals by setting up a Roth account within your existing plan.

You can then use that account to reduce your tax burden in the future by taking advantage of the high contribution limits. But even when you opt for a Roth IRA, you can still create some tax-free earnings for retirement, though at a lower rate.