funding a Simple IRA then converting to a Roth

Submitted by Larry Smith on Fri, 2020-10-09 12:22

We have a 64 year-old client who is a sole proprietor and wants to open a Simple IRA account. Can he fund any part of it by transferring money in from his existing joint account (non-qualified)? And, once the first year’s contribution (employee and employer) is in the Simple, must he wait 2 years before converting the money to his existing Roth IRA? Is it correct that a Simple cannot now be created for 2020 since we are past October 1? Thank you.



Submitted by Alan - IRA critic on Fri, 2020-10-09 16:57

  • Yes, since 10/1 has passed, client will need to wait until 1/1/2021 to establish a SIMPLE IRA plan. It will apply only to the 2021 year and he will need to have net earnings from SE in 2021. If he does he can contribute funds coming from a joint checking account.  He must wait 2 years from the date of the first 2021 contribution before rolling any funds out of the SIMPLE IRA to another IRA or Roth IRA. 
  • While limited in amount to the regular IRA contribution limit, he may be able to make a regular Roth IRA contribution or a back door Roth IRA contribution for 2020.

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