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How are Roth SIMPLE IRA contributions taxed, and how are they different from pre-tax contributions?

SIMPLE Roth IRA contributions are taxed in the year they are made because they are contributed with after-tax dollars. Once deposited, investment earnings can grow tax-free, and qualified withdrawals are generally tax-free if IRS rules are met, including the Roth five-year rule and age requirement.

Pre-tax SIMPLE IRA contributions are treated differently. They reduce your taxable income in the year you contribute, which can lower your current tax bill. However, withdrawals in retirement are generally taxed as ordinary income.

Employer contributions to a SIMPLE IRA are typically made on a pre-tax basis. Under Secure 2.0, employers may choose to designate employer contributions as Roth, but only if those contributions are fully vested immediately and included in your taxable income in the year they are contributed. Not all employers offer Roth employer contributions, and this feature must be explicitly adopted in the plan.