What tax treatment is given to participant accounts when Roth contributions are made to SEPs and SIMPLE IRAs?
As of the latest tax regulations, Roth contributions to SEP IRAs and SIMPLE IRAs are permitted due to changes introduced by the SECURE 2.0 Act, which was enacted in December 2022. Here's the tax treatment for these contributions: 1. **Roth SEP IRAs and SIMPLE IRAs**: Contributions made as Roth contributions are made with after-tax dollars. This means that the contributions themselves are not tax-deductible in the year they are made. 2. **Tax-Free Growth**: Earnings on Roth contributions grow tax-free, similar to Roth IRAs, provided certain conditions are met. 3. **Qualified Distributions**: Withdrawals of contributions are tax-free at any time. However, for the earnings to be tax-free, the distribution must be a qualified distribution. This generally means the account must have been open for at least five years, and the distribution must occur after the participant reaches age 59½, becomes disabled, or in the event of death. 4. **Required Minimum Distributions (RMDs)**: Unlike Roth IRAs, Roth accounts in employer-sponsored plans like SEP and SIMPLE IRAs are subject to RMDs starting at age 73 (as of 2023). However, participants can roll over their Roth SEP or SIMPLE IRA into a Roth IRA to avoid RMDs. 5. **Contribution Limits**: The contribution limits for SEP and SIMPLE IRAs remain the same, but participants can choose to designate their contributions as Roth contributions
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