What should I do with my SEP-IRA?

[factotum44]

Hello.  I'm a newer attending (2nd year post-residency) that switched from independent contractor ED work to outpatient-only Family Medicine.  I thought I would make a career out of the ED position, so I organized under a PLLC.  I quit after 10 months, but not before putting 25K into a Vanguard SEP-IRA.  I have since dissolved the PLLC and I'm now employed by a local hospital.  I want to do a backdoor Roth for myself and my wife (also an employed Family doc), but I don't want to violate the "pro-rata" rule.  I've read through the backdoor roth ira tutorial, but I still have some questions:

1.)  What should I convert the SEP-IRA into?  Can I do an individual 401K even though I'm an employee?  I don't want to contribute to my current workplace 403b as I am starting a new job in April 2018, which has a 401K plan, but should I just go ahead and try to roll it over into my current workplace 403b (Fidelity), then roll it over into the new job's 401K?  I won't get any match until I'm with either company for at least 2 years and anticipated this job change, so all our excess cash is going into a savings account at the moment.

2.)  Is there a tax bill associated with the conversion?  The account has grown to 31K.

Thank you to Dr. Dahle and all the contributors/members of this website/forum.  You helped save my household about 80K in interest when we refinanced our student loans.  I'm still early in my financial education, so please excuse any misuse of terms or other errors.

 

[PhysicianOnFIRE]

factotum44 wrote:

should I just go ahead and try to roll it over into my current workplace 403b (Fidelity), then roll it over into the new job’s 401K?

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Yes. It will be a tax-free transaction.

Don't worry. You're not alone in thinking your first job would be your career job. Most of us did. Most of us were wrong.

Cheers!
-PoF

[DMFA]

factotum44 wrote:

I want to do a backdoor Roth for myself and my wife (also an employed Family doc), but I don’t want to violate the “pro-rata” rule.  I’ve read through the backdoor roth ira tutorial, but I still have some questions:

Click to expand...

Probably not enough time to get a balance of $0 by 12/31/2017, but that's OK.  You can still make your 2017 non-deducted TIRA contribution, either now or in 2018 before 4/15.

Just do your conversion in 2018, because the way to avoid tax is to have zero in pretax IRAs by 12/31 of the year of the *conversion.*

Your f8606 for 2017 (filed in 2018) will have just the contribution and zero conversion, and the f8606 for 2018 (filed in 2019) will have $5500 prior years' basis, $5500 contribution, and $11,000 conversion (and zero tax due!).

If you make it now, you'll (probably) have minimal gains to pay tax on by the time you convert...but it's still gains you wouldn't have otherwise had.

[Peds]

you need 1099 income for an i401k.

just wait till next year and roll it into your new works 401k (assuming they accept incoming plans).

as noted you can still put 5500 into a nondeduc tIRA for 2017. and repeat in 2018. once the sep is gone next year then you convert everything over at once.

 

edit: forgot to add, you can do a backdoor for your wife if she does not have a sep/simple/trad IRA as these accounts are individual. if she is in the same boat as you however, then ignore.

[factotum44]

Thank you for the advice.  I think we'll set up the tIRA's and make the 2017 and 2018 contributions, get rid of the SEP, then convert to Roth afterwards in 2019.

Can we do a backdoor roth for my wife in the 2017 calendar year since she doesn't have a sep/simple/tIRA even though we file taxes jointly?

[factotum44]

Thank you for the advice, we'll proceed as you've outlined.