SECURE 2.0 Opens the Door to Roth SEP and SIMPLE IRAs

The SECURE 2.0 Act, signed into law at the end of 2022, brought dozens of changes to retirement planning. One of the most exciting—and least talked about—provisions is that employers can now offer Roth SEP and Roth SIMPLE IRAs. For small business owners, freelancers, and employees in these plans, that’s a game-changer.

What Changed?

Before SECURE 2.0, SEP IRAs and SIMPLE IRAs only allowed pre-tax contributions. That meant you got a tax deduction when the money went in, but withdrawals in retirement were fully taxable.

Now, starting in 2023, employers have the option to let employees make contributions on an after-tax (Roth) basis—just like you’d see in a Roth 401(k) or Roth IRA.

How Roth SEP and SIMPLE Contributions Work

• Employee contributions: In a Roth SIMPLE, salary deferrals can be made after-tax. That income will still appear on your W-2, but the growth in the account can be withdrawn tax-free later.

• Employer contributions: For both Roth SEP and Roth SIMPLE plans, employer contributions can also be designated as Roth. The catch? They’re taxable to the employee in the year contributed.

• Elections matter: Employees must opt in to have their contributions treated as Roth. Employers can’t automatically default contributions to Roth status.

  
  

Why This Matters

1. More tax diversification – You can now build both pre-tax and Roth savings through a SEP or SIMPLE plan, giving you flexibility in retirement.

2. Attractive for small business owners – Self-employed individuals using SEPs can finally access Roth treatment without needing a 401(k).

3. Planning opportunities – Younger employees or those in lower tax brackets can lock in today’s tax rates and enjoy tax-free growth down the road.

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What to Watch Out For

• Not automatic: Just because the law allows it doesn’t mean your plan custodian does yet. Many financial institutions are still rolling out Roth SEP and SIMPLE options.

• Tax reporting: Employer Roth contributions are immediately taxable and must be reported properly, so payroll and accounting systems need to be updated.

• Coordination with Roth IRAs: Contributions to a Roth SEP or SIMPLE are separate from the $7,000 annual Roth IRA limit, which creates additional savings opportunities.

  
  

The Bottom Line

SECURE 2.0 didn’t just tinker with required minimum distributions and catch-up contributions—it gave small business owners and employees a powerful new tool. Roth SEP and SIMPLE IRAs blend the simplicity of these retirement plans with the long-term advantages of Roth tax treatment.