SEP IRA’s to Roth Converssions
I have a high income client with only Roth IRA’s.
He has been contribution to his Traditional IRA then concerting to Roth’s each year. Now that he is self-employed and not contributing to a 401k, can he start a SEP IRA with maximum contributions and then immediately convert those contributions to Roth’s as he has been doing with his traditional IRA contribution? Or, is there a limiting factor that prevents him from doing this?
Terry
Permalink Submitted by Alan - IRA critic on Tue, 2015-01-27 22:48
He can do it, but the conversions will be taxable. In the past he was probably making non deductible contributions and then converting them tax free if he did not have any non Roth IRA balance. But a SEP IRA is a non Roth IRA. If he opened a solo 401k instead of the SEP IRA, he would not have a non Roth IRA and could continue the non deductible contributions and conversions. He could also adopt a Roth option in a solo 401k giving him the flexibility to contribute in any combination between pre tax and Roth to the solo K plan.