Roll Traditional IRA into SEP?
Dear Sir/Madam,
I have a client who has both a SEP (which he makes annual contributions to) and a Traditional IRA. Is there any advantage to having these accounts separate as opposed to rolling the TIRA into his SEP?
Since his Traditional IRA doesn’t receive annual contributions (his Roth does), I’m thinking of ways to simplify his balance sheet.
My understanding is that if he were to change how he contributes, he could make $5,500 Traditional IRA contributions to his SEP account in the future, as long as he codes them appropriately.
Thank you in advance- I look forward to your thoughts.
Permalink Submitted by Alan - IRA critic on Thu, 2013-09-19 00:13
You are correct. A SEP IRA is a form of traditional IRA, and he could roll his TIRA into the SEP and/or make regular TIRA contributions to his SEP IRA as well as the SEP contributions. Obviously he needs to speficially identify the type of contribution made since they are identified differently on Form 5498. The SEP contribution must be deductible but the TIRA contribution can be either deductible or non deductible based on modified AGI Limits. About the only advantage of keeping the accounts separate is a lesser chance of confusing the contribution types.
Permalink Submitted by Peggy Fisher on Thu, 2013-09-19 15:07
Would another advantage of keeping two separate accounts be that you could have the flexibile to contribute to two different accounts with two different contribution limits? For example you could have a very bad year in your business and be limited as to how much you can put in the SEP but becasue of a spouse’s income still have the ability to max out the Traditional Deductabile IRA limits?
Permalink Submitted by Peggy Fisher on Thu, 2013-09-19 15:08
Would another advantage of keeping two separate accounts be that you could have the flexibile to contribute to two different accounts with two different contribution limits? For example you could have a very bad year in your business and be limited as to how much you can put in the SEP but becasue of a spouse’s income still have the ability to max out the Traditional Deductabile IRA limits?
Permalink Submitted by Peggy Fisher on Thu, 2013-09-19 15:11
Apologizes. Dumb quesiton. I was thinking of a ROTH.
Permalink Submitted by Peggy Fisher on Thu, 2013-09-19 15:22
Maybe not so dumb.Could you have the SEP. Have a bad busines year limiting your contributions to the SEP but have a spouse and contribute to a Traditional IRA using the combined compensation of both spouses?Therefore a reason to have both a SEP and a Traditional IRA.
Permalink Submitted by Christopher Combs on Thu, 2013-09-19 16:26
Dear Peggy,I see where you’re going with that. However, I think Alan’s point is that your hypothetical client could make a spousal IRA contribution into a SEP account. The fact that it’s a SEP wouldn’t prevent the client from making a Traditional IRA contribution into it. Alan, am I correct here?Thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2013-09-19 18:27
Yes, you are correct. A regular or spousal TIRA contribution can be made to the SEP IRA account or to a separate TIRA account. The limits are the same either way.
Permalink Submitted by Peggy Fisher on Fri, 2013-09-20 15:40
Interesting. If I understand you guys correctly….You can make a Traditional IRA Contribution inot a SEP IRA it is just a matter of identifying the type of contribution. Therefore only needing one IRA, the SEP IRA.Yes?
Permalink Submitted by Alan - IRA critic on Fri, 2013-09-20 23:31
Yes, correct.