IRA Basis

Submitted by Donald Moulton on Tue, 2013-02-26 21:03

Hello and thanks in advance.

I know that when I convert an IRA to a Roth and the IRA has basis I have to calculate the basis percentage against all IRAs and not just the one I’m converting.

Two questions:

1 – Does that include a SEP IRA since that is technically a company plan?
2 – If it does include a SEP IRA, could I convert the SEP to an Indiv 401k first and then exempt it?

Thanks.



Submitted by Alan - IRA critic on Tue, 2013-02-26 22:24

  •   Yes, it includes all traditional, SEP, and SIMPLE IRAs you own.
  •   Yes, if the solo K accepts rollovers you could roll the entire pre tax balance of the IRA types listed and then convert the remaining basis tax free.


Submitted by Donald Moulton on Wed, 2013-02-27 00:40

Thanks,I guess my question was could we roll the entire SEP and convert the IRAs without including the SEP (now an Indiv 401k) in the basis calculation?



Submitted by Alan - IRA critic on Wed, 2013-02-27 01:17

Yes, you could do that, but it would leave pre tax amounts in the IRAs that would be taxed in the conversion. That’s OK if you are willing to pay taxes to get additional amounts converted to a Roth. Note that regardless of which IRA type you roll into the solo  K, the amount is deemed to come first from your pre tax balance of all these IRAs.



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