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Is a SEP IRA rollover to i401k worth it?

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  • Is a SEP IRA rollover to i401k worth it?

    I am a sole proprietor about 5 years from retirement. 95% of my retirement accounts are in a SEP IRA and 5% are in a 401k, all at Vanguard. Should I roll the SEP IRA into the 401k to achieve a backdoor Roth? Vanguard ETF funds have lower expenses than the limited funds available in their 401k product(admiral shares). Not sure if the Roth tax savings will offset the tiny increase in fees necessary for the 401k.

  • #2
    Rolling to a 401k in order to get funds into a Roth for the next 5 yrs will have some impact, but relatively little in the big picture. If you are at least age 50 (which I would assume, given you are 5 years from retirement), I would be more concerned about the loss of the $6,500/yr catchup contribution that is available to 401k contributors but not SEP contributors. If you are maxing out the SEP rather than the solo-k, you are missing out on a rather significant tax deduction. You don’t have to roll the current SEP into your 401k to do this but you need to activate the solo-k and let the SEP languish. If you choose to do this, I don’t know why you wouldn’t roll the SEP into the solo-k and also do backdoor Roths, too.

    Note that if you already have contributed to your SEP for tax year 2021, you will have to wait until 2022 to use the solo-k. And move from VG if you are that concerned about fees (I wouldn’t be).

    Welcome to the forum!
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Thanks for your thoughtful insights.

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