Back Door Roth and SEP

Submitted by Josh Harmon on Sun, 2018-08-12 19:07

I have a client who has just become self employed. Her husband makes enough money to where we have to do back door Roth IRA contributions. We were planning on having her contribute to a SEP IRA and deduct the contribution, then also contribute to a non-deductible traditional IRA. Once both contributions have been made, we were planning on converting both the SEP and traditional IRA, effectively cancelling out the SEP deduction, but moving both contributions to the Roth IRA. Is this something we can do?



Submitted by Alan - IRA critic on Mon, 2018-08-13 04:02

  • This can be done, but it may not be tax efficient if the SEP contribution is larger than the ND IRA contribution. A solo 401k in lieu of the SEP account would permit the ND contribution to be converted tax free assuming client has no other non Roth IRA balance. A solo K would also make possible a larger contribution than a SEP IRA in most cases. 
  • If a SEP is used, the first year contribution will probably not be made until 2019, so she will not have a pre tax IRA balance on 12/31/2018.  As such her ND contribution could be made and converted this year tax free so she could wait and see how much net income will be generated before deciding on whether to open a solo K.

Submitted by Andy Reynolds on Wed, 2018-08-15 12:32

You can also consider making a $18,500 (plus age 50+ catch up) Roth deferral into the Solo K each year.  In addition to $5,500 (each) backdoor Roth IRA contributions.  So total would be $29,500/year (plus catch up if age 50+) to Roth accounts (assuming no other pre-tax IRA money).   You can also consider doing a Mega Backdoor Roth IRA contribution each year if you want to through an in plan conversion.  I would definitely recommend contacting a TPA to help with this.  Here is the idea: https://momanddadmoney.com/mega-backdoor-roth-ira/This could get you $66,000/yr. into Roth money

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