How to Move SEPs Into Roth IRAs

SEP to Roth IRA conversions are taxable.

A simplified employee pension (SEP) is a type of tax-deferred individual retirement account. The contributions made to a SEP reduce your taxable income for that year, but distributions must be included as part of your taxable income. Roth IRAs offer after-tax savings, which means that contributions do not reduce your taxable income, but qualified distributions do not count as taxable income. The Internal Revenue Service permits people to convert from SEP IRAs to Roth IRAs, but you must include the amount of the conversion as taxable income.

Instructions

1. Request a Roth IRA transfer form from the financial institution that has your SEP IRA. The forms will vary between financial institutions, and some will have them online.

2. Complete the Roth IRA transfer form. This form will require the account information for your SEP IRA and your Roth IRA as well as your personal identification, including your Social Security number. Opt for a direct transfer of funds so you do not have to worry about redepositing the funds.

3. Complete IRS Form 8606 to calculate how much of your distribution is subject to income taxes. Unless you have made after-tax contributions to your SEP IRA, your entire conversion will be taxable.

4. File your taxes using IRS Form 1040 to report the amount of your conversion. Report the entire amount as a nontaxable IRA distribution on line 15a and the taxable amount on line 15b. This amount will be included in your taxable income.

References

• Internal Revenue Service: Publication 590
• Internal Revenue Service: Form 1040 Instructions (PDF)

Resources

• InternalRevenueService: Form 8606 (PDF)
• InternalRevenueService: Form 1040 (PDF)