Conversion of SEP/IRA accounts

[Guest StephenC]

I have a active SEP/IRA. I understand that I cannot convert the SEP portion to a Roth IRA. The investment gains in the account are a result of both my IRA contributions and my SEP contributions. How do I separate out the IRA side for the conversion process?

[Guest topgunz]

SEPs are IRAs to which the employer contributes. Therefore, they qualify for direct transfer (conversion). The IRS seems to agree.

If in doubt, rollover the SEP to an IRA, then convert the new IRA.

[Guest bonefish]

Ok, the law is clear that SEPIRA may be converted to ROTH IRAs. Here is a possible loophole (I hate that word). Can a SEP/IRA participant covert his prior year contribution to a ROTH each year? Thus allowing his ROTH contributions to exceed more than $2,000 per year? For expample, a single participant plan is able to contribute

$10,000 to his SEP/IRA in 1998. He also contributes $2,000 to a ROTH IRA. In 1999 he

converts the $10,000 SEP/IRA to the roth IRA. Even though he reports the $10,000 conversion in 1999, he has effectively contributed $12,000 to his ROTH IRA for 1998. Further, can he continue this strategy year after year? This seems too good to be true. Is it?

[Kathy]

Once the money has been contributed to the IRA by way of the SEP it is IRA money. Yes you may then turn around and convert it to a Roth IRA. However, the $10,000 contribution to the SEP IRA was either employer money which was never included in taxable income or a salary deferral. The main reason for salary deferral to SEP is exclusion from taxable income. What purpose would it serve to then turn around and include that $10,000 back in taxable income in the following year?

[Guest sable condor]

As I understand it, money in a sep or sarsep IRA grows tax-deferred but not tax-FREE. By converting the sep or sarsep to a Roth, after initially paying the tax on the conversion, the investment income grows forever tax-free.

[Guest Art E]

A Roth conversion can indeed be advantageous to some individuals. But to others a conversion may be a very costly mistake. It depends on a host of factors (mostly assumptions) - not simply because the Roth will probably provide income tax-free withdrawals if/when needed and/or transfers to heirs in the future.

I'm curious why you believe the conversion will be beneficial to you. Do you have any idea of how much better (or worse) quantatively you expect to be with the conversion? Or do you just want a Roth because you hope it'll be a good move for you?

Art