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Secure Act 2.0 – Roth Accounts

| February 01, 2023

The Secure Act 2.0 has several provisions designed to increase access to Roth accounts. Whereas the Roth IRA has been around for decades, and the Roth rules were expanded to include 401k plans several years ago, there were still a number of restrictions that excluded some retirement savers. The Secure Act 2.0 attempts to remedy this by expanding the Roth option to SIMPLE IRA and SEP IRA retirement plans. This will allow owners of these types of plans to make after-tax contributions and potentially benefit from tax-free distributions in retirement. However, changes to plan documents will be required before these changes take effect so there will be a delay before the change is implemented.

Employers will also be able to make matching contributions into an employee’s Roth account whereas these contributions had been required to go into a traditional account in the past. Any Roth contributions will be taxable to the employee and may not be subject to a vesting schedule. Therefore, taxpayers in a low tax bracket may benefit from paying the taxes on their employer retirement match up front in order to get the benefit of tax-free growth and distributions in retirement. However, this new provision is just an option and there is nothing that requires an employer to offer this option to their employees, so it may not be available in all cases.