The Money Mustache Community

Learning, Sharing, and Teaching => Investor Alley => Topic started by: pbc561 on March 20, 2015, 01:10:07 PM

Title: Taxable investing & SEP IRA converted to Roth IRA questions
Post by: pbc561 on March 20, 2015, 01:10:07 PM
Hi Bogleheads,


I'm trying to figure out what to do around $20k (after roth IRA contributions have been maxed out + no access to employer-related tax-deferred accounts). I'm self employed, so I was thinking about putting as much as I could into a SEP IRA (from a sole proprietor [schedule C] business) and then immediately convert the whole thing to a Roth IRA and paying taxes on it now as I would if I just put the money straight in a taxable account.


1. Is the scenario above a possible and best option for me? Are there any reasons why I shouldn't do this? If not, could you recommend another (ie. simple ira or self employed 401k conversion or leaving it in a sep ira?

2. Does a SEP-IRA to Roth IRA conversion have any contribution limit in relation to the $5,500 personal contribution limit, or can I convert as much as a SEP IRA would let me (ie. above my personal $5,500 contribution)? And would this go in the same personal Roth IRA account or a different one?

3. I heard that the mount I can contribute to a SEP IRA is my net income, minus half of self employment taxes I pay, and that amount multiplied by 25%. Is this true?

4. Is the converted amount treated like a regular contribution and therefore withdraw-able without penalty? I heard I'd have to wait at least 5 years to take it out, but not sure.

5. Is the scenario above what's called a back door Roth IRA or something else?

6. If I instead just pay taxes now and invest in taxable accounts (I'm in the 15% bracket and I believe 0% capital gains bracket), does that basically mean my "taxable accounts" would grow tax free like a roth ira as long as I stay in the 15% tax bracket, or am I missing something?

Thanks for your help.