SEP IRA and Roth contributions

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Topic Author
xwafflesx
Posts: 23
Joined: Tue Dec 19, 2017 8:36 pm

SEP IRA and Roth contributions

Post by xwafflesx » Wed Mar 13, 2019 10:54 am

I am looking for confirmation on information I have been reading online. I must be searching the wrong words as I am having a hard time getting a definitive answer but it looks like, if I read things correctly, that I can contribute the max to a SEP IRA and the max to a Roth. I am self-employed (no W-2 income for me) and maxed my SEP for 2018. It looks like I still have time to open a Roth with Vanguard and am eligible (based on our income as we MFJ) to contribute $5,500 to a Roth. Is this correct? From what I read the SEP IRA contributions are independent of Roth contributions. I have not filed taxes yet for 2018 as our appointment is Saturday. Please let me know if you need more information about our situation to give an answer.

Thanks.

Alan S.
Posts: 8233
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: SEP IRA and Roth contributions

Post by Alan S. » Wed Mar 13, 2019 11:10 am

xwafflesx wrote:
Wed Mar 13, 2019 10:54 am
I am looking for confirmation on information I have been reading online. I must be searching the wrong words as I am having a hard time getting a definitive answer but it looks like, if I read things correctly, that I can contribute the max to a SEP IRA and the max to a Roth. I am self-employed (no W-2 income for me) and maxed my SEP for 2018. It looks like I still have time to open a Roth with Vanguard and am eligible (based on our income as we MFJ) to contribute $5,500 to a Roth. Is this correct? From what I read the SEP IRA contributions are independent of Roth contributions. I have not filed taxes yet for 2018 as our appointment is Saturday. Please let me know if you need more information about our situation to give an answer.

Thanks.
The only tests you must pass for your Roth contributions is having enough taxable comp (which you have) and your modified AGI cannot exceed the limit of 189k where Roth contribution phaseouts begin. Your spouse could also make a Roth contribution subject to these two tests.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: SEP IRA and Roth contributions

Post by Spirit Rider » Wed Mar 13, 2019 11:27 am

Retirement plan contribution limits and Roth IRA contribution limits are entirely separate.

From the IRS SEP Plan FAQs - Contributions

If I participate in a SEP plan, can I contribute to a Roth IRA in addition to receiving contributions under the SEP plan?
A SEP-IRA is a traditional IRA that holds contributions made by an employer under a SEP plan. You can both receive employer contributions to a SEP-IRA and make regular, annual contributions to a traditional or Roth IRA. Employer contributions made under a SEP plan do not affect the amount you can contribute to an IRA on your own behalf.

Admiral
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Joined: Mon Oct 27, 2014 12:35 pm

Re: SEP IRA and Roth contributions

Post by Admiral » Wed Mar 13, 2019 11:36 am

Side note (and Spirit Rider will correct if I am wrong):

If you have a SEP IRA, and your income rises to the point where you cannot make a direct Roth contribution but must do so through the backdoor provision, you're are going to be liable for the pro-rata tax due on the pre-tax monies as a SEP or SIMPLE IRA are not considered "separate" employer-based plans like 401k/403b.

I was faced with this situation and had to roll my SEP into a 403b in order to do the backdoor conversion.

Here's some (very complex) detail:

https://www.kitces.com/blog/how-to-do-a ... -doctrine/

Spirit Rider
Posts: 10038
Joined: Fri Mar 02, 2007 2:39 pm

Re: SEP IRA and Roth contributions

Post by Spirit Rider » Wed Mar 13, 2019 12:35 pm

Correct.

Anytime in the future if the Backdoor Roth becomes necessary, they could also adopt a one-participant 401k and rollover the SEP IRA even if they have no earned income that year.

Topic Author
xwafflesx
Posts: 23
Joined: Tue Dec 19, 2017 8:36 pm

Re: SEP IRA and Roth contributions

Post by xwafflesx » Wed Mar 13, 2019 2:05 pm

Thanks everyone. That is what I figured but I think all my reading was just confusing me. I was getting hung up on the difference between those with a SEP from an employer and those of us who are fully self-employed with a SEP. Sometimes too much google searching just makes things worse. I appreciate the help again.

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Earl Lemongrab
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Joined: Tue Jun 10, 2014 1:14 am

Re: SEP IRA and Roth contributions

Post by Earl Lemongrab » Wed Mar 13, 2019 5:12 pm

Is there a reason you're using a SEP for self-employment versus a solo 401(k)? Those allow the same employer contribution but the i401(k) also allows employee contributions, either traditional or Roth. Do you have a W2 job with 401(k)?
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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