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I think I made a mistake. Question about SEP IRA with backdoor roth

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  • I think I made a mistake. Question about SEP IRA with backdoor roth

    Long time reader, first time poster.

    I think I made a mistake.

    I have my MD salary which is paid via W2 $500K. I have a very small side business that generates 1099 income probably around $4K this year.. Each year I have been putting in 5500 into tIRA for my wife and I and then converting this to a backdoor roth. This year I made a SEP IRA for myself and loaded in 20% of the amount the side business has generated. Roughly $400. I figured I would minimize taxes which would have a marginal rate of 39%.

    However I just read today that having a SEP IRA would preclude me from doing a roth conversion without having to calculate basis and pay taxes on a small portion of the roth conversion each year. Seems like such a hassle that it is hardly worth it.

    Is it true that having a sepIRA precludes me from converting my yearly addition of 5500 tIRA to roth?

    Is there a way to have vanguard just close my sepIRA? The money I put in is just sitting in a money market fund cause it isn't even enough money to buy the smallest required fund they offer. (another bozo mistake)

     

     

  • #2
    Another option I thought of is to roll the SEP IRA from vanguard into a separate 401K account. Would this be ok?

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    • #3




      Another option I thought of is to roll the SEP IRA from vanguard into a separate 401K account. Would this be ok?
      Click to expand...


      Yes, this is what you should have done. Just set up a SOLO-k and roll the SEP into it before 12/31/17 and continue with the SOLO-k in the future. Same amount of contribution/deduction.

      Remember, however, that the 20% contribution is limited to net profits, not gross income. I don't see how you can know at this point in the year what your 2017 net profits will be. Or were you contributing to the SEP for 2016? You have until 10/15/17 to set up your SEP and contribute for last year, you know.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Thanks for the response. To clarify this business has no expenses other than my time, they pay me at the end of the month for services provided. So I know how much money I've made so far this year so I have put 20% of the money they've paid me so far.

        I did not know that I could contribute for 2016 year. But the money I earned is very small so not worth my effort.

        So the plan going forward will be to make a soloK on vanguard and roll this SEP into it. And in the future continue to put money directly into the soloK?

        Thanks

        midwestache

         

         

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        • #5
          Am I eligible to made contributions to a Solo401K if my employer already has a 401K with profit sharing where I stash 54K pretax in each year?

           

          Thanks again

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          • #6


            So the plan going forward will be to make a soloK on vanguard and roll this SEP into it. And in the future continue to put money directly into the soloK?
            Click to expand...


            Yep, that's the plan! I don't custody at Vanguard, but assume they will let you r/o from the SEP.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7




              Am I eligible to made contributions to a Solo401K if my employer already has a 401K with profit sharing where I stash 54K pretax in each year?

               
              Click to expand...


              Yes, you can contribute 20% of net profits. You get only one $18k employee deferral per year but can put up to $54k in any number of 401k's for unrelated employers at the 20% contribution rate.
              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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