An employee researching whether an employer can contribute to her personal Roth IRA.
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Employers can’t contribute directly to an employee’s personal Roth IRA, but they can still help with retirement savings in other ways. The SECURE 2.0 Act allows employers to contribute to SIMPLE IRAs and SEP IRAs that are set up as Roth accounts. This can provide employees with the benefits of Roth savings, including tax-free withdrawals in retirement, and significantly enhance an employee’s retirement savings strategy by leveraging the advantages of Roth accounts.
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SIMPLE IRAs (Savings Incentive Match Plan for Employees) and SEP IRAs (Simplified Employee Pension Plan) are retirement plans designed to benefit small businesses and self-employed individuals, but they differ in their structure and contribution limits. Here are some key distinctions.
SIMPLE IRAs are ideal for small businesses with fewer than 100 employees, due to legal employee limits. Employers must either match employee contributions up to 3% of their salary or contribute 2% of each eligible employee’s salary, whether or not the employee contributes.
For 2025, employees can contribute up to $16,500 (up from $16,000 in 2024) to a SIMPLE IRA, with an additional catch-up contribution of $3,500 for those aged 50 or older.
SEP IRAs are designed for self-employed individuals and small business owners. In a SEP IRA, only employers contribute, and the contribution is typically a percentage of the employee’s salary.
For 2025, the contribution limit for SEP IRAs is either 25% of the employee’s compensation or $70,000 (up from $69,000 in 2024), whichever is less. Unlike SIMPLE IRAs, SEP IRAs do not offer catch-up contributions, but they have higher overall contribution limits, making them an attractive option for business owners who want to save more aggressively.
The SECURE 2.0 Act introduced significant changes to retirement savings, including the option for SIMPLE and SEP IRAs to be offered as Roth accounts. Previously, these plans were limited to pre-tax contributions, meaning taxes were deferred until withdrawal in retirement. With the SECURE 2.0 Act, employers can now offer Roth SIMPLE and SEP IRAs, allowing for post-tax contributions.
This change gives employees the flexibility to choose between traditional pre-tax contributions or Roth contributions, which grow tax-free and aren’t taxed upon withdrawal in retirement.
For employers, offering Roth options can make retirement plans more attractive to employees who prefer the long-term tax benefits of Roth accounts. This shift aligns SIMPLE and SEP IRAs with other retirement accounts like 401(k)s, which have long offered Roth options to enhance the appeal and versatility of these plans.
An employee researching whether an employer can contribute to a Roth 401(k).
Roth 401(k)s combine features of traditional 401(k)s with the tax benefits of Roth accounts. Employees contribute to a Roth 401(k) using after-tax dollars, meaning contributions do not reduce taxable income in the year they are made. However, both the contributions and any investment earnings grow tax-free, and qualified withdrawals in retirement are also tax-free.
Employer contributions to a Roth 401(k) traditionally have been made on a pre-tax basis, meaning they are taxed upon withdrawal. However, the SECURE 2.0 Act of 2022 allows employers to make contributions on a Roth basis if they choose. When an employer makes Roth contributions, those contributions are taxed upfront, just like the employee’s Roth contributions, and grow tax-free.
This change provides employees with a fully tax-free retirement income stream from their Roth 401(k), offering flexibility in retirement planning. Employees should carefully consider their tax situation and retirement goals when deciding whether to direct contributions to a Roth 401(k) or a traditional 401(k).
Despite not benefiting from employer contributions, personal Roth IRAs are still a valuable retirement planning tool. Opening a Roth IRA is a straightforward process that allows you to start saving for retirement with the benefits of tax-free growth and withdrawals. Here’s how to get started:
Determine your eligibility: Ensure you meet the income requirements to contribute to a Roth IRA. For 2025, single filers with a modified adjusted gross income (MAGI) up to $165,000 ($161,000 in 2024) and married couples filing jointly with a MAGI up to $246,000 ($240,000 in 2024) can contribute to a Roth IRA. Note: Contributions start phasing out at lower income levels.
Choose a financial institution: Select a bank, brokerage, or financial institution to open your Roth IRA. Consider factors like investment options, fees and customer service when making your choice.
Complete the application: Fill out the necessary paperwork, either online or in person. You’ll need to provide personal information such as your Social Security number, employment details and beneficiaries.
Fund your account: Decide how much you want to contribute, keeping in mind the annual contribution limits. For 2025 and 2024, the limit is $7,000, with an additional $1,000 catch-up contribution for those aged 50 and older.
Select investments: Choose how to invest the money in your Roth IRA. Options include stocks, bonds, mutual funds, ETFs and more. Your investment choices should align with your retirement goals and risk tolerance.
Set up automatic contributions: To make saving easier, consider setting up automatic contributions from your bank account to your Roth IRA on a regular basis.
An employee reviewing her retirement plan.
While employers cannot directly contribute to an employee’s personal Roth IRA, the SECURE 2.0 Act of 2022 has expanded the possibilities for retirement savings through Roth options in SIMPLE and SEP IRAs, as well as Roth 401(k)s. These changes offer employees greater flexibility in choosing between pre-tax and after-tax contributions, allowing for tailored retirement strategies that align with individual financial goals. Whether opting for a Roth 401(k) or opening a Roth IRA independently, understanding these options can help you maximize your retirement savings potential and enjoy the long-term benefits of tax-free growth and withdrawals.
A financial advisor can help you determine when is a good time to retire and how to maximize your benefits. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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