Author Topic: What do you think of the new Roth SEP IRA and Roth SIMPLE IRA?  (Read 546 times)

WorkingToUnwind

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What do you think of the new Roth SEP IRA and Roth SIMPLE IRA?
« on: February 28, 2024, 05:30:09 PM »
My accountant is all jazzed up about the new Roth SEP IRA and the Roth SIMPLE IRA. He was trying to sell me on putting some of the money that I normally put into my solo 401k into one of the Roth vehicles. We probably won't FIRE for at least 5-10 years, at which point we'd do the Roth conversion ladder. Does it make sense to try one of these Roth vehicles in the meantime? My accountant is also going to be managing a Roth SEP IRA fund, so he's trying to nudge me into signing on with his company.

seattlecyclone

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Re: What do you think of the new Roth SEP IRA and Roth SIMPLE IRA?
« Reply #1 on: February 28, 2024, 05:38:23 PM »
Why not make Roth contributions to your solo 401(k) and/or do a Roth conversion of existing pre-tax funds instead of opening up a new account?

WorkingToUnwind

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Re: What do you think of the new Roth SEP IRA and Roth SIMPLE IRA?
« Reply #2 on: February 28, 2024, 06:08:37 PM »
I don't think my solo401k allows for Roth contributions. I'm also in a very high tax bracket right now so I don't want to do a Roth conversion ladder yet. My husband could switch to a Roth 401k at work though. I'm not sure if any Roth vehicle makes sense, though. We're earning north of 350k/year so is it really wise to sacrifice pre tax savings?

seattlecyclone

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Re: What do you think of the new Roth SEP IRA and Roth SIMPLE IRA?
« Reply #3 on: February 28, 2024, 09:29:36 PM »
I don't think my solo401k allows for Roth contributions. I'm also in a very high tax bracket right now so I don't want to do a Roth conversion ladder yet. My husband could switch to a Roth 401k at work though. I'm not sure if any Roth vehicle makes sense, though. We're earning north of 350k/year so is it really wise to sacrifice pre tax savings?

Whether it's wise to do Roth right now is a very individual decision, though at your income level I'd probably guess it isn't.

My main point was this: contributing a post-tax dollar directly into a Roth account is roughly equivalent to contributing a dollar to a pre-tax retirement account, and then moving a dollar of existing pre-tax retirement money to Roth and paying tax on it. If you're willing to do the former, consider whether doing the latter might allow you to accomplish your goals just as well without adding as much complexity to your financial life.
« Last Edit: February 28, 2024, 09:31:39 PM by seattlecyclone »

terran

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Re: What do you think of the new Roth SEP IRA and Roth SIMPLE IRA?
« Reply #4 on: February 29, 2024, 06:42:09 AM »
The one advantage I can think of is that traditional solo 401(k) contributions can reduce the QBI deduction while Roth contributions don't, so you effectively only get 80% of the deduction from traditional contributions unless you have some other factor reducing your QBI. This doesn't mean you shouldn't contribute to traditional solo 401(k), just that you should compare your actual marginal tax savings to your expected marginal tax rate in retirement.

You can make Roth employee salary deferral contributions at some solo 401(k) providers, but while the the same law that allows Roth SEP contributions allows Roth 401(k) employee profit sharing contributions I'm not aware of any free/mainstream providers that have amended their plans to allow it at this point.

As far as I know you can't "maintain" both a solo 401(k) and a SEP IRA in the same year. For SEP "maintain" means contribute to. I'm not sure if a solo 401(k) is considered maintained whenever it's open rather than only when contributed to like the SEP, but it wouldn't surprise me. I would tend to prefer the higher limits of the solo 401(k) unless you have high enough self employment income to make the max contribution to either on profit sharing contributions alone.

WorkingToUnwind

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Re: What do you think of the new Roth SEP IRA and Roth SIMPLE IRA?
« Reply #5 on: March 01, 2024, 12:44:35 PM »
The takeaway that I'm getting from the thread responses is that there's nothing inherently special about the new Roth SEP and SIMPLE IRAs, so we should just stay the course. If we feel strongly about saving in a Roth account, we could just change my husband's 401k at work to a Roth 401k. Then I can continue to max out the solo 401k.

MustacheAndaHalf

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Re: What do you think of the new Roth SEP IRA and Roth SIMPLE IRA?
« Reply #6 on: March 02, 2024, 12:54:24 AM »
I think the "taxes" area probably has more expertise about new forms of individual retirement account (IRA), and on tax considerations for high income earners.

From reading about Roth SIMPLE IRA, it has good incentives for the average person with no investment experience.  Required contributions may sound bad, but required matching makes up for it.
https://www.irs.gov/retirement-plans/plan-sponsor/simple-ira-plan

 

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