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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75887  
Subject: Re: Convert SEP to Roth? Date: 6/24/1999 7:35 AM
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Michael asks:

<<This sounds great, but I'm unclear how to go about doing it. If the SEP is converted to a Roth, does the SEP continue to exist with a zero balance? Or does some balance need to be left in it in order for it to remain active?>>

If you convert all of the SEP, then that particular account would cease to exist; however, another SEP account could be opened to receive the continuing SEP contributions. An easier solution is just to leave some money in the existing SEP by converting only part of the funds to avoid the hassle of opening a new SEP account.

<<Would future conversions of funds contributed to the SEP become a separate Roth (i.e. a new Roth IRA for each conversion) or can future funds from the SEP go into the original Roth?>>

They may go to the same Roth. You must, though, keep track of the date of deposit and the amount to ensure you comply with the 5-year rule for withdrawals to avoid any unpleasant tax surprises in the event you decide to make a withdrawal.

<<Last question: Am I correct in thinking that future funds contributed to the SEP, although tax deductible at the time, become taxable upon future conversion to Roth? If so, it would make sense to put $2000 in the Roth and the balance in the SEP since the Roth will grow tax free until the next conversion...yes? (OK, *that's* the last question.)>>

That's correct. Anything that gets transferred to the Roth will be taxed in the year of conversion. With that as the case, it makes sense to deposit the first $2K in the Roth if you intend to ultimately convert the SEP contributions anyway.

Regards..Pixy
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