SEP IRA contribution question

5 Replies

Hi, 

maybe this scenario was discussed before. i could use some advice from CPA/EA.

my scenario: 

I opened SEP IRA years ago when i was self-employed.. and then i haven't been self-employed for the past 10 years..

so  , the question: 

can i contribute funds to my SEP IRA with the income i earned from my current employer (which is after-tax income)?

( i researched online, SEP IRA funds should be "pre-tax"? )

thank you for your time,

regards

Indra

Indra, you should convert your SEP IRA into Traditional IRA, and then you can contribute up to $5,500/yr (plus $1,000 catch up if you are over 50). While you may be contributing post tax dollars, when you do your tax return for that year you will be able to deduct the contributions so it will end up being pre-tax dollars.

@Indra Tanudjaja

The SEP IRA does not allow for after-tax contributions. However, a solo 401k which is also a retirement account for the self-employed allows for both Roth 401k and after-tax 401k contributions.

If you decide to make non-deductible IRA contributions, you should open a separate IRA to hold such funds.

Also, if you can make Roth IRA contributions which will be affected by your modified AGI, then this will be better than making non-deductible IRA contributions. See the following.

https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2018

Also, earnings on non-deductible IRAs will be subject to taxes once distributed.

Originally posted by @Dmitriy Fomichenko :

Indra, you should convert your SEP IRA into Traditional IRA, and then you can contribute up to $5,500/yr (plus $1,000 catch up if you are over 50). While you may be contributing post tax dollars, when you do your tax return for that year you will be able to deduct the contributions so it will end up being pre-tax dollars.

 Thanks for the responses.

fyi , i actually already have ROTH IRA setup years ago..

should i convert SEP IRA to ROTH IRA instead? or SEP to Traditional IRA?

if converting SEP to Traditional, is one allowed to have ROTH and Traditional IRA at same time?

if yes, this means i can contribute $5,500 on ROTH and another $5,500 on traditional per year? ( i am under 50)

thanks again,

Indra

Indra,

Roth conversion is a taxable event, if you decide to do that be sure to consult with your CPA regarding tax consequences.

Yes, you can have both Traditional and Roth at the same time.

No, you can only contribute total of $5,500 to an IRA, you can split that any way you wish between Roth or Traditional but you can't contribute more than $5,500/yr.

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