Back Door Roth Conversion — SEP-IRA Involved
New business owner clients; MAGI prohibits Deductible and Roth IRA Contributions. Has a qualified plan, which husband and wife participate in. Am transferring pre-tax traditional IRA dollars to the qualified plan.
Wife also has a side business, which has a SEP-IRA.
QUESTION – do her SEP-IRA monies (all pre-tax) have to be transferred to the qualified plan also before I do the conversions of non-deductible IRA contributions?
I know SEP-IRA contributions are considered “employer contributions” – but would they be included pro-rata in the BACK DOOR ROTH CONVERSIONS — if I don’t transfer to the qualified plan ????
Have not gotten a definitive answer elsewhere.
Thanks
Permalink Submitted by John Peterson on Wed, 2015-04-08 22:08
Yes, the SEP-IRA $ has to be rolled upstream into the qualified plan and left there at least through the end of the year to accomplish the back-door Roth.Remember there is no such thing as a “SEP-IRA”, it’s simply a TIRA which an employer has been allowed to contribute to pursuant to the employer’s adoption of a SEP program.
Permalink Submitted by Alan - IRA critic on Wed, 2015-04-08 23:03
The SEP IRA balance must be transferred to the QRP before year end to avoid pro rating to determine the taxable amount of the conversion, but this does not have to be done before the conversion. In other words, wife could make the non deductible contribution now for 2014 and/or 2015 and convert immediately, and has until 12/31 to roll the SEP balance into her QRP to avoid having a SEP balance at year end.