Transferring 401ks or SEP/Simple IRAs from old employers

[k_coley]

I left one employer in 2021 where I had a SEP/Simple IRA, but now I can't contribute to it. Can I convert that balance into a Roth IRA to continue contributing and adding to that amount on my own? What are the tax implications? I read that if I wait two years after the end of my employment with this company to convert the account, or transfer the entire balance from a SEP into a Roth account (thereby closing the SEP/Simple IRA account), I won't have to pay taxes on it, is this correct?

Also this year 2022, I left my most recent full-time employer to work as an independent contractor, what should I do with my retirement account (401k) from them?

[OpeA1]

Hello k_coley!

Any retirement account converted to a Roth will be taxed at the time of conversion. When the money is later distributed from the Roth for retirement, it is tax-free.

Generally, you can roll-over any retirement account into another retirement account when you leave the employer, but you can no longer contribute to that plan because you no longer work there. Please check with your broker to see if after the rollover, you can contribute to the account.

The 401(k) with your former employer can be left in that account, if the employer permits this, or you can open a rollover retirement account and move the funds in there. Be sure to open a retirement account to avoid characterization of the funds as a distribution.

I hope this is helpful!

OpeA1

[VincentL2]

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Anytime you withdrawn/roll-over funds to a Roth IRA, it is taxable.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.

[k_coley]

Would you then recommend leaving the employer accounts as-is to be paid out at retirement? And opening my own Roth IRA separately to contribute to?

To avoid any tax implications/payments before retirement age?