Please help me get rid of my SEP-IRA immediately

[GastroMastro]

I made the mistake of starting a SEP-IRA at Vanguard for my wife, who is a sole proprietor, a few years ago. I want to be able to do backdoor roth and don't want to deal with calculating pro rata, moreover, its just an extra retirement account that I'd prefer to eliminate so I can consolidate her accounts. it's just been sitting with about $7500 in VTI. I want to get rid of it. Can someone please tell me how to do this? I don't mind paying taxes on the full amount this year.

Currently, she has
1. SEP IRA
2. Traditional IRA (after tax)
3. Roth IRA

How exactly do I roll over the SEP to the traditional? will it automatically generate a tax form next year? I am above limit for tax deductible traditional IRA, but the SEP IRA was pre-tax. do I need to fill out for 8606? those things are such a hassle...

[Peds]

Solo 401k.

[GastroMastro]

Solo 401k.

I know s401k is the right answer for long-term planning; but are you saying i should transfer SEP-IRA to solo 401k? if so, that would remain pretax?

i'm more interested in ultimately doing a roth IRA so that i can get red of both the SEP-IRA and the nondeductible IRA.

[jacoavlu]

options are

1 rollover sep Ira to Roth. This is taxable at your marginal rate

2 rollover sep Ira to solo 401k. Stays pretax but is more complex

assume you’ve been doing form 8606 yearly if making nondeductible Ira contributions

[southerndoc]

I opened a Solo 401(k) at Fidelity for this reason. Transferred my SEP to the Fidelity Solo 401(k) and a few months later amended my Solo 401(k) to Vanguard and added a Roth option.

Make sure you read up thoroughly on it before you do it. The Solo 401(k) requires additional paperwork and you must abide by the rules (i.e., I transferred my SEP to Fidelity in May and then amended my plan to Vanguard the following May; I didn't have a Roth option for 2018... I could make employer contributions up to my tax deadline of 10/15/18, but I could not make any Roth contributions as my plan didn't have a Roth option in 2018 or before 05/2019).

As long as you read up and become familiar with what you're doing, it shouldn't be a problem.

[GastroMastro]

Is transferring to the traditional IRA not an option option?

would I be rolling over to a Roth directly?

[Hank]

Is transferring to the traditional IRA not an option option?

would I be rolling over to a Roth directly?

SEPs, SIMPLE IRAs, and traditional IRAs all have pro rata taxation problems that hurt you if you make a back door Roth contribution. If you convert your SEP to a Roth IRA, that conversion is taxable at your marginal tax rate. Try to avoid these problems by rolling the SEP into a 401(k).

Also, Vanguard solo 401(k)s won’t let you roll money in from a SEP or an IRA.

[Peds]

I made the mistake of starting a SEP-IRA at Vanguard for my wife, who is a sole proprietor, a few years ago. I want to be able to do backdoor roth and don't want to deal with calculating pro rata, moreover, its just an extra retirement account that I'd prefer to eliminate so I can consolidate her accounts. it's just been sitting with about $7500 in VTI. I want to get rid of it. Can someone please tell me how to do this? I don't mind paying taxes on the full amount this year.

Currently, she has
1. SEP IRA
2. Traditional IRA (after tax)
3. Roth IRA

How exactly do I roll over the SEP to the traditional? will it automatically generate a tax form next year? I am above limit for tax deductible traditional IRA, but the SEP IRA was pre-tax. do I need to fill out for 8606? those things are such a hassle...

basically you are going to open a solo 401k, rollover the the SEP to get rid of it.
then you are going to convert the nondeductible tIRA to a rIRA and pay tax on any gains. your basis should have been tracked on form 8606.
then you can do a regular bdrIRA.

hence my initial answer, solo 401k.

[FIREshrink]

The presence of your wife's SEP has nothing to do with you doing a backdoor Roth. Are you taking about doing a backdoor Roth for her?

[GastroMastro]

SEPs, SIMPLE IRAs, and traditional IRAs all have pro rata taxation problems that hurt you if you make a back door Roth contribution. If you convert your SEP to a Roth IRA, that conversion is taxable at your marginal tax rate. Try to avoid these problems by filling the SEP into a 401(k).

Also, Vanguard solo 401(k)s won’t let you roll money in from a SEP or an IRA.

Thanks for everyone responses. My goal is to find a solution, any solution, that will allow me to stay within Vanguard. I know plenty of people on this forum are nimble with multiple brokerages, but the whole point of this is to make things easier for me, not more complicated as I already wasted my time making it unnecessarily complicated. I am willing to pay a conversion at my marginal tax rate for converting SEP to ROTH IRA, it is only about 7500 in the SEP-IRA so the taxes won't be too much. If I do this, will that count as her regular roth IRA contribution for this year? If I do this, can I only do 6000 this year (max roth contribution in a year) and have to do the remaining ~1500 next year? (which I would be fine with...)

[Peds]

You didn't say that.
If those are your rules conversion is your only choice.
Conversions are not contributions.

[GastroMastro]

You didn't say that.
If those are your rules conversion is your only choice.
Conversions are not contributions.

Yes I apologize. That was clearly an omission.

so, if I do a vanguard sep to vanguard Roth Conversion, that will trigger a taxable event. That will cause vanguard to generate a form (which form?) that I need to report on my next years tax return. Do I need to do anything with the 8606? I’m guessing no. Is the fact that I have a nondeductible IRA Have anything to do with the fact that I’m converting sep Ira to Roth IRA, ie, don’t have to do any pro rata calculation correct? I am completely bypassing the tIRA?

[Peds]

Yes I apologize. That was clearly an omission.

so, if I do a vanguard sep to vanguard Roth Conversion, that will trigger a taxable event. That will cause vanguard to generate a form (which form?) that I need to report on my next years tax return. Do I need to do anything with the 8606? I’m guessing no. Is the fact that I have a nondeductible IRA Have anything to do with the fact that I’m converting sep Ira to Roth IRA, ie, don’t have to do any pro rata calculation correct? I am completely bypassing the tIRA?

1099
you should have been doing 8606 for the nondeductible tIRA
youll be converting the entire tIRA to a rIRA as well so there will be nothing to prorate.

[GastroMastro]

1099
you should have been doing 8606 for the nondeductible tIRA
youll be converting the entire tIRA to a rIRA as well so there will be nothing to prorate.

Thanks peds. Actually my plan is to leave the tIRA alone and just convert SEP for now. That’s why I wanted to make sure I can bypass the tIRA. I already did 8606 for the nd tIRA

[Peds]

sure but you have gains in the tIRA so converting the SEP triggers prorata.