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Back door roth question - dealing with existing SEP IRA

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  • Back door roth question - dealing with existing SEP IRA

    So I decided to pull the trigger and make the switch from a SEP IRA to a solo 401k to take advantage of the back door roth. The problem is I already fully funded my SEP IRA for 2017. I asked the guy at Fidelity customer service where I have my SEP if I could open a new solo 401k account this year and move the money from my various IRAs (SEP, traditional, rollover) into the solo 401k so I can do the roth conversion and not get impacted by the pro rata rule. He told me that because I've already funded the SEP IRA I can't open the solo 401k until next year.

    I don't want to contribute any additional pre tax money into the new solo 401k - I just want to open it so I can consolidate my IRAs and allow myself to do the roth conversion without getting hit by the pro rata rule this year. Do I have to wait until 2018 or is Fidelity customer service wrong?

  • #2
    You should be able to get Fidelity to reverse the contribution. I know they would for an overcontribution and it is the same principle. You might end up having to open a SOLO at another custodian, making your 2017 contribution there, and report to Fidelity that you have an overcontribution for 2017 and need to remove it. Think about it - if your business had a loss this year and you didn't qualify to make any contribution to your SEP, then they would have to reverse.

    Otherwise, Fidelity is technically correct. You are not supposed to have both a SEP and a 401k for the same business in the same year. However, the employer is supposed to track, not the custodian.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


    • #3
      Thanks Johanna!