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🚨 Pro-Rata Trap: Does My SEP IRA Kill My Backdoor Roth?
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Question: I’m a solopreneur with a SEP IRA, and I’ve been making Backdoor Roth IRA contributions. A friend told me I might be paying taxes I didn’t expect. Is my SEP IRA really sabotaging my Backdoor Roth?
Answer: Yes — and unfortunately this catches many solopreneurs by surprise. My Solo 401k Financial explains that the IRS pro-rata rule aggregates all of a taxpayer’s IRA balances — traditional, SEP, SIMPLE, and rollover — when calculating the taxable portion of any Roth conversion. If even a small slice of those balances is pre-tax (which a SEP IRA always is), the IRS treats every Backdoor Roth IRA conversion as a proportional mix of pre-tax and after-tax dollars. The fix is a reverse rollover from the SEP IRA into a Solo 401k, which removes those pre-tax dollars from the IRA ecosystem entirely.
Learn More:
https://www.mysolo401k.net/the-pro-rata-trap-why-solopreneurs-with-a-sep-ira-need-a-solo-401k/
mysolo401k.net
The Pro-Rata Trap: Why Solopreneurs With a SEP IRA Need a Solo 401k - My Solo 401k Financial
My Solo 401k Financial offers self-directed Solo 401k, IRA LLC & ROBS 401K Retirement Plans. Learn about The Pro-Rata Trap: Why Solopreneurs With a SEP IRA Need a Solo 401k
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