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SEP IRA and ROTH


Guest Stan Mallis
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Guest Stan Mallis

I'm self employeed and make maximum yearly contributions to my SEP-IRA. The Roth IRA is obviously attractive because of its tax-savings. Can I have both a SEP-IRA and make contributions to a Roth IRA? Thanks for any information you can pass along.

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Guest Martin Silfen

A taxpayer can maintain a Roth IRA and a SEP IRA and a SIMPLE IRA simultaneously. A SEP IRA and/or a SIMPLE IRA may even be converted to a Roth IRA if the owner meets the modified AGI limits for conversions of traditional IRAs to Roth IRAs, with one special exception: In the case of a SIMPLE IRA, the conversion can't occur until 2 years from the date the owner first participated in the SIMPLE IRA Plan. Once that 2-year threshold is passed, all future "employer" contributions to the SIMPLE IRA can immediately be transferred to the Roth IRA (although its probably wise to wait until year-end to be sure the AGI limits are met for that year). SEP and SIMPLE conversions to Roth IRAs are approved by the IRS in Reg. Section 1.408A-4, Q&A 4. Incidently, when the employer is a self-employed sole proprietor, the same person is wearing two hats: He is the employer and the employee. As the employer he contributes to the employee's SEP or SIMPLE IRA. As the employee he converts or contibutes to his Roth IRA.

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