Taxability of Roth conversion of individual IRA when there's also a SEP
From Rich@21:1/5 to All on Wed Apr 12 10:07:43 2023
A self-employed family member accidentally contributed
some money to their individual IRA that they meant to go
to their SEP-IRA (Vanguard's UI can be confusing on this).
That alone isn't a problem because they have the money
to also make the intended contribution to the SEP-IRA.
The hitch is that their income is high enough that the
individual IRA contribution is non-deductible (because
of their participation in the SEP). Normally I'd suggest to
just convert that non-ded contribution to a Roth.
But since it appears that individual IRAs and SEP-IRAs
are lumped together (except for contribution source and
limits) I'm wondering such a conversion will actually be
mostly taxable because of the entirely pre-tax SEP-IRA
balance.
So is that true? For purposes of Roth conversions of
individual IRAs are SEP-IRAs considered an IRA and
the SEP-IRA balance goes into the conversion taxability
calculation? Or for purposes of Roth conversions are
SEP-IRAs considered to be a separate thing that's
excluded from the calculation (like solo 401ks are)?
--
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