More than one of my tax clients has inquired about the possibilty of annual SEP to Roth conversions. I have received mixed opinions on the feasibilty of this, but I think it can be done, providing there is sufficient income to fund a SEP, and income remains below the Roth limit. Please, if anyone has additional insight, or perhaps a Code or Reg cite, I would greatly appreciate it. Thank you.

I see no reason why it can't be done. Once the SEP contribution is made, it is treated no differently from any other IRA. Therefore, once the money is in the IRA, it can be converted to a Roth IRA, assuming that the $100,000 modified adjusted gross income threshold is not exceeded. And, they will have to pay tax on the amount converted.

This would be different for contributions made to a SIMPLE IRA, due to the two year withdrawal restrictions.

Hope this helps.

Is this being proposed as a way to bypass the 2k limit? It would seem to me that you might even find a pension/profit sharing arrangement for owners of small businesses that would potentially allow even greater sheltering of funds, albeit with taxes paid as part of an annual ritual of Roth conversion.