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Level 1
posted Jul 15, 2021 3:34:53 PM

Roth IRA backdoor conversation when i have a SEP

Hi,

 

I have a existing SEP and want to do a backdoor Roth IRA.  If i roll the SEP into my employers 401K plan at that point i will no longer have any other IRA.  Am i able to do the traditional IRA with after TAX dollars to Roth conversation without any taxable penalties sine there is no other IRA?

 

thank you

 

allen

0 3 2443
1 Best answer
Level 15
Jul 15, 2021 3:41:48 PM

Yes as long as the total IRA value of all Traditional, SEP, or SIMPLE IRA accounts is zero as of Dec 31 of the year that the conversion occurs.

3 Replies
Employee Tax Expert
Jul 15, 2021 3:40:43 PM

Yes, you need to rollover the SEP funds to a qualified plan in order to avoid "spreading" the conversion across your SEP plan and the non-deductible IRA basis.  This is critical to the backdoor Roth conversion strategy.

Level 15
Jul 15, 2021 3:41:38 PM

The IRS allows you to combine money in a SEP IRA with money in a 401(k) plan, either by moving the SEP IRA money to the 401(k) or the 401(k) money to the SEP IRA. Since both accounts offer pre-tax savings, you won't pay any taxes when you move the money.

 

However all of it is taxable if you do a ROTH conversion... it is not a "back door" event in any way.  So if you want to convert from the Sep to the Roth directly the tax liability is exactly the same as a SEP to 401K to Roth path.  

Level 15
Jul 15, 2021 3:41:48 PM

Yes as long as the total IRA value of all Traditional, SEP, or SIMPLE IRA accounts is zero as of Dec 31 of the year that the conversion occurs.