A Simplified Employee Pension individual retirement account is a traditional IRA. You can convert your SEP account to a Roth IRA the same way you would any other IRA. You will owe income taxes for that tax year on the entire balance since you're rolling over funds from an account funded with pre-tax dollars to one funded with after-tax dollars. Further contributions to the new Roth IRA would be with after-tax dollars.
Anytime you withdrawn/roll-over funds to a Roth IRA, it is taxable. You are converting before tax dollars to after tax dollars. In general, you can withdraw your Roth IRA earnings without owing taxes or penalties if:
- You're at least 59½ years old
- It's been at least five years since you first contributed to any Roth IRA (the five-year rule).
The five-year rule begins when you opened the account. The clock starts ticking on January 1 of the year you made your first contribution to any Roth. Because you have until April 15 of the following tax year to make a contribution, your five years might not be a full five calendar years. For example, if you contributed to your Roth IRA in early April 2020 but designated it for the 2019 tax year, you'll only have to wait until January 1, 2024, to withdraw your Roth IRA earnings tax-free, assuming you’re at least 59½ years old.
You should talk to a financial adviser about your options concerning your 401k.
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