How to understand "if contributions were made to a SEP IRA, they could potentially reduce the amount you can contribute to your Roth IRA" message?

Question

I received the following message from Fidelity (with whom I have both Roth and SEP IRA accounts):

NOTE: SECURE 2.0 Act was signed into law on December 29, 2022. For 2023, if contributions were made to a SEP or SIMPLE IRA on your behalf, those contributions could potentially reduce the amount you can contribute to your Roth IRA.

I receive a check twice a year from my employer for contributions to my SEP IRA, which I send to Fidelity. The check and contribution are directly from my employer to my SEP IRA account. Does this count as "contributions made to a SEP or SIMPLE IRA on [my] behalf"?

If so, how should I understand the message Fidelity sent me? It's worth noting that I contribute to my Roth IRA regularly in addition to the SEP IRA contributions I receive from my employer.

I understand that SECURE 2.0 created what amounts to a Roth SEP IRA option, but so far I have no contributed to a Roth-classified SEP IRA, only to my SEP IRA that existed prior to the passing of SECURE 2.0, so even without understanding what this message is getting at I think I'm in the clear, but wanted to double check. I don't have any plans in the near term to avail myself of a Roth SEP IRA option, but it is something I'm keeping my eye on as they begin to roll out and will consider whether it makes sense for me.

Answer 1

I receive a check twice a year from my employer for contributions to my SEP IRA, which I send to Fidelity. The check and contribution are directly from my employer to my SEP IRA account. Does this count as "contributions made to a SEP or SIMPLE IRA on [my] behalf"?

Yes.

If so, how should I understand the message Fidelity sent me? It's worth noting that I contribute to my Roth IRA regularly in addition to the SEP IRA contributions I receive from my employer.

SECURE 2.0 act allows making SEP IRA contributions under Roth terms, as you've mentioned. However it made it a bit non-trivial. The Sec. 601 of the Act starts with removing the provision in Sec. 408A (that governs Roth IRAs) that added the limitation on SEP plans from having a Roth option, but that provision also excluded SEP plans from the consideration for contribution limits. So while you're now allowed to contribute to Roth SEP IRA, all SEP IRAs are affecting the Roth IRA contribution limits.

To compensate for that, Sec. 601(d) of the House version of the bill added a provision called "Coordination with Roth contribution limitation" that adds the SEP IRA contribution back to the allowable Roth IRA contribution limits, with some strings attached. However, that part doesn't exist in the final bill passed in the Congress and signed by the President.

This is all very new, and is only in effect starting 2023. The IRS has not released any meaningful guidance yet on how to interpret these rules.