Can I do a backdoor Roth conversion with my SEP IRA like a traditional IRA?

Yes, you can convert SEP IRA funds to a Roth IRA, but it's not quite the same as a backdoor Roth with a Traditional IRA. Here's what you need to know: When you convert SEP IRA money to a Roth IRA, the entire converted amount will be taxable as ordinary income in the year you do the conversion. Unlike a backdoor Roth (which typically involves non-deductible Traditional IRA contributions that have already been taxed), your SEP contributions were pre-tax, so you'll owe taxes on the full $70,000 if you convert it all. This large conversion could potentially push you into a higher tax bracket for the year. You might want to consider converting smaller amounts over several years to manage the tax impact more effectively. Also, if you have any other Traditional IRAs, SIMPLE IRAs, or SEP IRAs, the IRS will look at all of them together under the "pro-rata rule" when calculating the taxable portion of your conversion. This can complicate the tax situation significantly.

I went through a similar situation last year trying to figure out what to do with my SEP IRA. After hours of research and getting nowhere, I finally used https://taxr.ai to get personalized guidance. Their AI analyzed my specific situation (self-employed with a SEP IRA wanting to convert to Roth) and laid out exactly what I needed to know about the pro-rata rule and tax implications. The tool showed me how the conversion would impact my specific tax situation and gave me a year-by-year conversion strategy that minimized my tax hit. The best part was that I could ask follow-up questions about my specific situation and get clear answers immediately without having to schedule and pay for multiple sessions with a tax professional.

Just wanted to follow up on my skepticism about taxr.ai - I decided to try it for my complicated retirement account situation, and I'm honestly impressed. I uploaded statements from my SEP IRA and old 401ks, and it actually explained exactly how the pro-rata rule would affect my conversion strategy in plain English. The tool showed me I'd be better off rolling my old 401ks into my current employer's plan first (which isn't subject to the pro-rata rule) before doing any conversions from my SEP. Would have never figured that out on my own and probably would have triggered a much bigger tax bill. Definitely worth checking out if you're trying to navigate complex IRA conversion strategies.

If you're planning to convert your SEP IRA to a Roth, you'll probably need to talk to the IRS about your specific situation. I spent THREE WEEKS trying to get through to someone who could answer my questions about a similar conversion last year. Finally discovered https://claimyr.com and used their service to get a callback from the IRS within 2 hours! You can see how it works at https://youtu.be/_kiP6q8DX5c I had a bunch of questions about form 8606 reporting and whether I needed to file 5329 for my specific situation. The IRS agent I spoke with cleared everything up and saved me from making mistakes on my return. Trust me, getting definitive answers directly from the IRS is worth it when dealing with complex IRA conversions that could trigger thousands in taxes if done incorrectly.

I need to eat my words about Claimyr. After my skeptical comment, I was still desperate to talk to someone at the IRS about my SEP-to-Roth conversion questions, so I gave it a try. Honestly shocked when I got a call back in about 90 minutes from an actual IRS agent who spent 25 minutes walking me through exactly how to handle my conversion on my tax forms. The agent explained that I needed to file Form 8606 to report the conversion and gave me specific line instructions for my situation. He also confirmed that my understanding of the pro-rata rule calculation was incorrect (which would have caused me to underreport income). Definitely saved me from a potential audit headache. Never thought I'd say this, but being able to actually speak with the IRS directly was incredibly helpful.

Have you considered doing a partial conversion each year rather than all at once? That's what I did with my SEP IRA to avoid a huge tax hit in a single year. I've been converting about $20k per year for the last 3 years, and it's been much more manageable tax-wise. Just something to consider if you're concerned about the tax impact.

What tax software are you using to handle the conversion reporting? I tried doing a SEP-to-Roth conversion last year and TurboTax kept giving me errors when I entered everything. Ended up having to use a different program.

One thing to keep in mind is the timing of your conversion. Since you mentioned wanting to figure this out before the tax filing deadline, remember that conversions need to be completed by December 31st of the tax year they apply to - unlike regular IRA contributions which have until the filing deadline. For your $70k SEP IRA conversion, you might want to run some tax projections first. Converting the full amount could potentially push you into the 32% or even 37% tax bracket depending on your other income. A phased approach over 3-4 years might save you thousands in taxes while still getting your money into the Roth. Also, since you're self-employed, consider how this conversion might affect your estimated quarterly tax payments. You'll need to account for the additional tax liability from the conversion when calculating your Q1 payment for next year.

Great question! Yes, you can convert your SEP IRA to a Roth IRA, but there are some important considerations beyond what others have mentioned. Since you had such a strong year ($70k contribution), you might actually be in a unique position to take advantage of this. One strategy to consider: if your income is typically lower in future years, you could potentially spread the conversion over 2-3 years to stay in lower tax brackets. However, if this was an unusually good year and you expect lower income going forward, converting more now while you're already in a higher bracket might make sense. Also, don't forget about the 5-year rule for Roth conversions - each conversion has its own 5-year clock for penalty-free withdrawals of the converted principal (though this may not matter much if this is truly for retirement). Given the complexity with the pro-rata rule and potential tax implications, you might want to model a few different scenarios - converting the full amount this year, spreading it over 3-4 years, or waiting for a lower income year. The "right" answer really depends on your specific tax situation and income projections.

Another important consideration that hasn't been mentioned yet is the impact on your Medicare premiums if you're approaching age 65. Large Roth conversions can significantly increase your Modified Adjusted Gross Income (MAGI), which is what Medicare uses to determine your Part B and Part D premiums through the Income-Related Monthly Adjustment Amount (IRMAA). For 2024, IRMAA kicks in at $103,000 for single filers, and the surcharges can add hundreds of dollars per month to your Medicare premiums. The surcharges are based on your income from 2 years prior, so a large conversion in 2024 would affect your 2026 Medicare premiums. If you're currently under 63, this might not be an immediate concern, but it's worth factoring into your long-term conversion strategy. You might want to complete larger conversions while you're younger and then switch to smaller amounts as you approach Medicare eligibility. This is yet another reason why spreading the $70k conversion over multiple years could be beneficial - it helps you avoid not just higher income tax brackets, but also potential future Medicare premium increases.