My wife was self-employed from '95 or so until 8/2021 when she retired. Prior to 1998, she had an SEP account set up as her work retirement plan. In 1998, she stopped funding the SEP and established a new-at-the-time SIMPLE IRA as her work retirement plan moving forward.
Both accounts still exist today; both at Schwab. Since retirement, both are now dormant and not receiving any new contributions. The SIMPLE is the much larger account due to the amount of time it was active.
From the research I’ve done toward consolidating, it appears that she can roll the SEP assets into the SIMPLE, but she can also roll the SIMPLE (or both) into a new Traditional IRA account; similar to what I did with my two 401k’s when I retired in 2020.
Where I’m currently unclear is about the advantages/disadvantages of each account type going forward. Is anyone aware of any clear advantages to either keeping the SIMPLE or rolling it to a new Traditional IRA? We are considering making ROTH conversions at some point in the future.
For the most part, there’s no advantage to holding funds in a SIMPLE IRA or SEP IRA over a traditional IRA. However, with the The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, SEP and SIMPLE IRAs are provided the same federal bankruptcy protection as ERISA provides for all qualified retirement plans, while Traditional and Roth IRAs are protected up to about $1.4Million, or thereabouts. However, since these plans are dormant (no new contributions) you should check with the custodian to make sure the antialienation protection continues, if that is important to her. If not, it would likely be easier to manage them in one TIRA then 3 separate IRAs.
If you both are in retirement and have not yet begun a pension or Social Security, it is an ideal time to do Roth conversions, at least to the extent it takes you to the top of the 12% bracket.
If you both are in retirement and have not yet begun a pension or Social Security, it is an ideal time to do Roth conversions, at least to the extent it takes you to the top of the 12% bracket.
I would point out that under current law, the tax brackets are scheduled to revert to the previous higher brackets beginning in 2026. At that point, the current 22% bracket will become a 25% bracket. So for anyone expecting to be in the 25% bracket in retirement, converting up to the top of the current 24% bracket may actually be advantageous.
I would point out that under current law, the tax brackets are scheduled to revert to the previous higher brackets beginning in 2026. At that point, the current 22% bracket will become a 25% bracket. So for anyone expecting to be in the 25% bracket in retirement, converting up to the top of the current 24% bracket may actually be advantageous.
Many of us will be on Medicare before taking Social Security. Note that the top of the 24% bracket is well above the trigger for IRMAA (at least MFJ, which is all I looked at). Also, the IRMAA trigger looks back to the year you turn 63. So, that’s something to consider for those age 63 and higher.
Many of us will be on Medicare before taking Social Security. Note that the top of the 24% bracket is well above the trigger for IRMAA (at least MFJ, which is all I looked at). Also, the IRMAA trigger looks back to the year you turn 63. So, that’s something to consider for those age 63 and higher.
Sure, for those who are going to be 63 by the end of 2025, IRMAA is something that should be considered when determining conversions in the current bracket structure. Not everyone will be 63 by then, though.
In any case, the IRMAA threshold is well above the top of the current 12% bracket, so conversions over the top of the 12% bracket could still be advantageous even for those who will be 63 or older by the end of 2025.
Another thing to watch out for when determining how much to convert is the NIIT threshold of $250k for MFJ and $200k for Single/HOH. Again, that’s well above the top of the 12% bracket but below the top of the 24% bracket for all filing statuses.