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  • backdoor roth question

    Hi all,
    Sorry for the probably very simple question. I just wanted to make sure that I was not making any mistakes in planning ahead for my backdoor roth. As a little bit of background, I just finished my residency but don't start my new job until October (wife is still in residency for another year) so our income this year will not be over the Roth contribution limits. We currently have a financial advisor (I plan to take over everything within the next year) that has set up our roth IRA which we have both been maxing out while in residency. In learning more about finance and getting all of our ducks in a row, I found out that I have a very small amount (~500$) in a SEP-IRA in a bank from a summer job working for a family business years ago. I have some some retirement money in a state ORP plan from residency that we both contributed to in order to earn the match. I am checking with the administrator of those funds, but I do not think that I am able to rollover the SEP into that account (I could be wrong). In anticipation of starting BDR for 2021 since our household income will be over the limit, should I open an IRA at Vanguard or Fidelity and roll the SEP money into there then just convert that to roth as part of my 2021 roth contribution (contribute another ~5500 to the ~500 from the SEP to equal 6K total for 2021)? If so, is it best to do that rollover in December prior to 2021 starting or does it matter timing wise? Thanks for your help!

  • #2
    Why don't you rollover your SEP into your backdoor Roth IRA? Rollovers don't count against your contribution limits.

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    • #3
      1) the only issues with a backdoor roth IRA is if you have an IRA balance (including SEP IRAs) at YE. A 401k/403b doesn't impact backdoor Roth IRA contributions. You can leave it where it is or if your new plan accepts rollovers, you could move it to your new retirement plan.
      2) since you are below Roth income limits for 2020 and will be jumping to a higher tax bracket next year, I'd convert the small $500 SEP IRA in 2020 before you jump in income.
      3) by doing the above, you'll have a $0 balance in your IRA at YE and won't have any issues doing backdoor roth ira contributions moving forward.
      4) you may want to consider doing a Roth conversion from your old ORP plan (depending on the size). Same logic as #2 because you are in much lower tax bracket today relative to where you'll be in the future.
      Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC | Podcast Host - The Physician's Guide to Financial Wellness

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      • #4
        Thanks for the feedback! I did not realize that the SEP rollover would not count towards my contribution limit, that's good to know. I really like the idea of the Roth conversion of my ORP but don't think I've budgeted enough to pay the taxes on the 40K+ in the account this year. I will be starting some work at the VA so I may end up just rolling the ORP into my TSP account once I have one of those vs just leaving it where it is at. Thanks again!

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        • #5
          TSP accepts traditional deferred retirement funds as a roll in, but won’t allow you to roll in Roth account balances.

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