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Author: MRothaus Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121095  
Subject: SEP-IRA to Roth Rollover Date: 2/12/1998 1:15 PM
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After extensive reading of lots of information (and Roy Lewis' excellent articles) I have decided to roll over my SEP IRA to a Roth IRA this year.

I will outline the facts, then my assumptions/questions:

Facts:

I am self-employed, 37 years old, divorced, no kids or alimony. My SEP-IRA is worth $400k according to my latest brokerage statement. I live in Pennsylvania, and $120k of the $400k represents contributions that were deductible on federal taxes, but state taxes were paid ($280k represents the growth). My AGI for 1998 is expected to be $60k. I already own my home, so I will not qualify for "first-home distribution" rules.

I do not need the money for 5 years (more specifically, I will not withdraw anything until January 1st, 2003).

Assumptions/questions (please correct me if any are wrong):

- The SEP IRA is made up of stocks, bonds and some cash. I intend to transfer the entire SEP to a Roth IRA within the same brokerage. Thus, I shouldn't have to sell and repurchase the securities in the account. The taxable amount is $400k since that is the value of the account according to my last statement (true?).

- My income will be increased by $100k each of the next 4 years. I understand that my FEDERAL income will increase by that amount. What about my STATE income? Assume that I will have the ability to meet my tax liabilities from sources outside of my SEP.

- I expect several stocks within my account to rise substantially this year (they are technology stocks that are just starting to rebound from being hammered in December 1997). Thus, if I have to value the account at the time of the rollover, it makes sense for me to roll it over as soon as possible and not wait until December 31st of this year...right?

- Starting in Jan 1st of 2003, I should be able to withdraw up to $400k tax free (even though I will be under age 59.5). It should be federal tax-free, what about state taxes?

- The only reason I should leave the money in the SEP is if I expect the value of the portfolio to decrease. Otherwise it seems to me that I gain a lot of flexibilty, especially 5 years from now, on having access to the money. And if the portfolio has dramatic gains, I can withdraw the gains tax-free after I reach age 59.5. With the SEP, I will have to pay taxes on all the gains at ordinary rates after age 59.5. Anybody see anything I'm missing here?
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