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SEP IRA and Roth IRA together?

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mscheidl
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SEP IRA and Roth IRA together?  Reply with quote  

I am in the process of transferring my current SEP IRA and Roth IRA accounts from Principal to E-Trade (self directed).

I am trying to decide whether I should keep both accounts or to consolidate everything into the SEP IRA. I am going to contribute $1,000 per month to retirement. Would it be smarter to contribute (about evenly) into both accounts or put it all in the SEP. I know I canít directly rollover the funds from the Roth to the SEP.

Just to give you a picture of my situation. I am self-employed, married (has 401k through her job), I am 29 years old. I currently have 25k in the SEP and 14k in the Roth.

I appreciate any advice.
Post Thu May 30, 2013 1:29 pm
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oldguy
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quote:
consolidate everything into the SEP IRA


I don't think you can do that - you've already paid the taxes on the Roth money, is there a way to "un-pay" the tax?

Your future investing choice depends mostly on your tax bracket - if you are in a low bracket you wnat to pay the tax now and get the money tax-free when you retire. If you are in a high bracket, you want to defer the tax bill until you retire and pay the tax then when you're in a lower bracket.
In your case with $12,000/yr, you an put most of it into your Roths (up to $11,000) or you can put it all into the SEP - or any mix of the two.

About the only wat to consolidate the two would be to prepay the tax bill n the SEP and covert everything to Roth - and that doesn't sound like a viable option.

As for the future - the US Tax Code changes continually and cannot be predicted - so it is best to diversify between after-tax and pre-tax investing - that way you won't find yourself 100% in the wrong tax status when you're age 65. Example - what if the US went to a VAT system like UK or Canada, ie, a 20% federal sales tax. The tax-free benefit of a Roth would be gone, you'd have to pay a 20% sales tax on every Roth dollar that you used.
Post Thu May 30, 2013 3:29 pm
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clydewolf
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Re: SEP IRA and Roth IRA together?  Reply with quote  

quote:
Originally posted by mscheidl
I am in the process of transferring my current SEP IRA and Roth IRA accounts from Principal to E-Trade (self directed).

I am trying to decide whether I should keep both accounts or to consolidate everything into the SEP IRA. I am going to contribute $1,000 per month to retirement. Would it be smarter to contribute (about evenly) into both accounts or put it all in the SEP. I know I canít directly rollover the funds from the Roth to the SEP.

Just to give you a picture of my situation. I am self-employed, married (has 401k through her job), I am 29 years old. I currently have 25k in the SEP and 14k in the Roth.

I appreciate any advice.

At E-Trade you will have a SEP IRA account, and you will have a ROTH IRA account.

To back up what Oldguy has said, in retirement it is good to have both tax deferred and tax free accounts.

On distribution from the SEP IRA the tax deferred will be reported in the taxable column of your 1040. But then you may have some adjustments/deductions from that income to arrive at your AGI. From the AGI everyone gets a minimum of the standard deduction and their personal exemptions deducted. So far that money is tax free too. Now we have your taxable income remaining, which is the amount of your income that is taxed.

Qualified distributions from your ROTH IRA do not show in the taxable column of your 1040.
Post Thu May 30, 2013 8:53 pm
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Anton Martin
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Re: SEP IRA and Roth IRA together?  Reply with quote  

quote:
Originally posted by mscheidl
I am in the process of transferring my current SEP IRA and Roth IRA accounts from Principal to E-Trade (self directed).

I am trying to decide whether I should keep both accounts or to consolidate everything into the SEP IRA. I am going to contribute $1,000 per month to retirement. Would it be smarter to contribute (about evenly) into both accounts or put it all in the SEP. I know I canít directly rollover the funds from the Roth to the SEP.

Just to give you a picture of my situation. I am self-employed, married (has 401k through her job), I am 29 years old. I currently have 25k in the SEP and 14k in the Roth.

I appreciate any advice.


I completely agree with both opinion you got, and both are very good advices you got. Contributing to both account can be more beneficial for you.
Post Fri May 31, 2013 7:20 am
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