Rollover old SEP that has been rerplaced by 401-K
Is there an advantage to taking funds from and older SEP IRA and rolling them into a Roth IRA? ❓ No contributions have been made to th SEP since we started 401-K (9 years) SEP account is approx. $55K
Is there an advantage to taking funds from and older SEP IRA and rolling them into a Roth IRA? ❓ No contributions have been made to th SEP since we started 401-K (9 years) SEP account is approx. $55K
Permalink Submitted by Alan Spross on Tue, 2009-06-23 21:21
This depends on the same consideration as any other Roth conversion. While there are several such considerations, the central one is convert if you can do so at a tax rate that is less than what you expect to pay in retirement and not convert if you will pay a higher rate for the conversion. If you expect the rate to be about the same, then convert a portion of assets to hedge your bets and provide for tax diversification benefits in retirement.
This often means converting incremental amounts each year rather than large amounts that will inflate your tax bracket. In 2010 the income limit for conversions disappears and in addition for that year only the taxes can be split between 2011 and 2012 on the conversion. So if you wait until next year, the 55k would result in 27.5 k reported in 2011 and the rest in 2012. You should also be able to pay the taxes on converted amounts from other funds, NOT withhold on the conversion distribution.
Permalink Submitted by Bruce Steiner on Wed, 2009-06-24 03:11
At a constant tax bracket, the Roth conversion is a big winner, assuming you have sufficient nonretirement assets to pay the tax on the conversion.
The analysis becomes more complicated if you’re in (or the conversion will throw you into) a higher bracket than you will otherwise be in later on.
Permalink Submitted by Anonymous (not verified) on Thu, 2009-06-25 21:16
Just one point to make about this for some who look at the SEP in a different way:
The SEP IRA is a Tradtional IRA. Nothing is different, except for how some of the money came in. So, once you have a SEP, it’s like having a regular IRA, subject to all the same distribution, conversion rules, etc.
pmk