Retirement Bill Doubles Mandatory Cash-Out Limit to $5,000, Raising Roth Contribution Cap

The “Emergency Savings Enhancement Act of 2025” is making two big structural tweaks to how your employer-sponsored retirement plan works, taking effect for tax years starting after December 31, 2026. This bill touches both the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC), focusing on mandatory distributions and Roth contribution limits.

The Automatic Cash-Out: $2,500 to $5,000

The most significant change here is the increase in the mandatory cash-out limit, which moves from $2,500 up to $5,000 (Section 2). What does that actually mean? Right now, if you leave a job and your vested retirement balance is $2,500 or less, your former employer can automatically pay that money out to you in a lump sum, even if you didn't ask for it. This bill raises that threshold to $5,000. For plan administrators, this is a win—it cleans up their books by getting rid of more small, inactive accounts.

For former employees, however, this change is a double-edged sword. If you’re a former employee with a balance between $2,500 and $5,000, your employer can now unilaterally decide to liquidate that account and send you a check. That money is now out of the tax-advantaged retirement system and subject to immediate taxes and potentially early withdrawal penalties. For someone who was planning to let that $4,000 ride until retirement, this means losing compounding growth and the tax shield without their active consent. It’s a subtle shift that puts more retirement savings at risk of being spent immediately rather than preserved.

Doubling Down on Roth Contributions

On the savings side, the bill offers a boost for those who use Roth contributions in their defined contribution plans (like a 401(k)). The annual contribution limit for these specific Roth contributions is being doubled, moving from $2,500 to $5,000 (Section 3). Roth contributions are made with after-tax dollars, meaning the money grows tax-free and withdrawals in retirement are also tax-free. For workers who are maxing out their current Roth limits, this provision allows them to shelter an additional $2,500 annually in a tax-free vehicle.

This change is straightforwardly beneficial for employees who have the disposable income to save more, especially those who anticipate being in a higher tax bracket when they retire. It also includes technical updates to the definition of an “eligible participant” for both general plan participation and Roth contributions, clarifying that eligibility is determined by the plan’s own age, service, and other requirements, which helps streamline administrative clarity for employers.

The Takeaway

Overall, this bill is a mixed bag. On one hand, it offers a solid increase in the Roth contribution limit, giving savers more flexibility. On the other hand, the increase in the mandatory cash-out limit to $5,000 significantly expands the pool of former employees whose retirement money can be involuntarily removed from the system. If you leave a job with a small balance, you’ll need to be more vigilant about rolling that money over quickly before your former employer decides to cash you out.