Rollovers · 2025 and 2026

How SEP and SIMPLE IRAs Affect Backdoor Roth Conversions

Published by Moss Ladder · Updated October 24, 2026 · Editorial policy

Executive summary

An IRA funded through work can still affect a personal Roth conversion. Traditional SEP and traditional SIMPLE IRAs generally join the owner's traditional IRA allocation, while Roth versions have different treatment. SIMPLE accounts also have an important two-year restriction. Identify the actual account type and participation history before assuming that an employer-related balance is outside the pro-rata calculation.

Educational guidance for ordinary scenarios. Check the official form's year and filing branches and obtain advice for your actual records.

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Employer sponsorship does not turn an IRA into a 401(k)

A SEP arrangement generally uses IRA accounts to receive employer contributions. A SIMPLE IRA plan also uses IRAs, even though employees and an employer participate through a workplace program. These are not the same account structure as an employer 401(k), 403(b), governmental 457(b) plan or the TSP. For the ordinary Form 8606 allocation, the owner's traditional SEP and traditional SIMPLE IRA balances generally count with other owned traditional IRAs. The relevant distinction is the tax and account category, not whether a contribution appeared through payroll.

Do not put an employer SEP contribution on the regular nondeductible traditional IRA contribution line merely because it entered an IRA account. Employer contributions follow separate rules and do not automatically create the individual's after-tax regular contribution basis. Likewise, a workplace SIMPLE contribution does not consume the same regular traditional/Roth IRA contribution limit in the same way as a regular personal IRA deposit, though plan coverage can affect deduction eligibility. Review the applicable plan and IRA rules separately instead of treating every retirement contribution as interchangeable.

Model the year-end aggregation explicitly

Assume an owner has $5,000 documented prior nondeductible basis and converts $10,000 while a traditional SEP IRA holds $30,000 at December 31. There are no current-year nondeductible contributions, other relevant distributions or adjustments. The ordinary denominator is $40,000, so 12.5% of the conversion is tax free. The conversion uses $1,250 basis, is $8,750 taxable and leaves $3,750 basis to carry forward. Using only the empty personal IRA's year-end statement would omit the account that explains most of the result.

The same account inventory principle applies when assets are spread across a traditional rollover IRA, a SEP and a SIMPLE IRA. The calculator provides separate balance inputs to make the inventory visible, then aggregates the applicable values for one owner. It does not combine spouses. Review late employer contributions and account values carefully because a balance estimate can change before December 31. A qualified-plan account that remains in the plan generally is not added to IRA line 6 merely because that plan also received employer money.

Traditional SEP balance in the owner's aggregate pool

This invented example assumes one taxpayer, documented basis, eligible ordinary transactions, no special repayment and no tax withholding. Dollar amounts are planning values. Use the official form's filing branches; a displayed line is not automatically a required entry on a filed return. The 2026 examples apply published 2026 contribution limits with the 2025 allocation structure.

Traditional SEP balance in the owner's aggregate pool
Form 8606 line	Modeled amount
1	$0.00
2	$5,000.00
3	$5,000.00
4	$0.00
5	$5,000.00
6	$30,000.00
7	$0.00
8	$10,000.00
9	$40,000.00
10	0.125000
11	$1,250.00
12	$0.00
13	$1,250.00
14	$3,750.00
16	$10,000.00
17	$1,250.00
18	$8,750.00
15a	$0.00
15b	$0.00
15c	$0.00

The SIMPLE IRA two-year clock is a real restriction

The IRS measures the initial two-year period from when the individual first participated in the employer's SIMPLE IRA plan, not simply the date an account was transferred to a new custodian. During that period, the permitted tax-free transfer route is generally to another SIMPLE IRA. A transfer to a non-SIMPLE IRA or an employer plan does not become eligible merely because the receiving custodian is willing to process paperwork. Obtain the participation date and confirm the specific transaction with the plan and a qualified adviser.

A taxable withdrawal within that initial period can be subject to a 25% additional tax instead of the usual 10% early-distribution additional tax, unless an applicable exception applies. The 25% amount is not automatically charged to every SIMPLE transaction: age, transaction type and exceptions matter. It is also separate from ordinary income tax. IRC § 72(t)(6) and the IRS SIMPLE withdrawal guidance explain this distinction. The site's ordinary conversion model does not compute that additional-tax analysis and flags the restricted situation for review.

After two years, receiving-plan rules still apply

After the initial SIMPLE period, eligible rollovers can generally go to other permitted non-Roth IRAs or an eligible employer plan, subject to the relevant rollover rules. That does not mean every receiving plan accepts IRA money or that after-tax IRA basis can be moved into the plan. Ask whether the plan accepts the source type, whether it requires a pre-tax certification, whether a direct rollover is available and how completion will be documented. A Solo 401(k) also requires an eligible business and an appropriate plan.

For any reverse-rollover projection, identify the eligible taxable amount and the amount of basis that must remain outside the receiving plan. Do not transfer an entire mixed-basis IRA on the theory that employer plans are always excluded from line 6. Required minimum distributions and other excluded amounts can prevent a proposed transfer from qualifying. The strategy table can show a numerical assumption while the administrator's real acceptance and tax eligibility remain unresolved. A hypothetical zero year-end balance is not transaction approval.

SECURE 2.0 Roth SEP and SIMPLE options change the inventory

SECURE 2.0 permits qualifying SEP and SIMPLE arrangements to offer Roth contribution treatment under the applicable rules. Whether the employer and financial institution have implemented an option is a practical question, not something the calculator can infer from a generic SEP or SIMPLE label. A Roth SEP IRA or Roth SIMPLE IRA is not the same as a traditional SEP or traditional SIMPLE IRA. The 2025 Form 8606 notes distinguish traditional and Roth versions in the relevant definitions.

Roth-designated contributions have their own income inclusion and reporting consequences; they are not merely a personal backdoor Roth contribution relabeled through a plan. IRS Notice 2024-2 and Publication 560 describe the implementation framework. Confirm the account's actual tax designation and the type of each reported contribution. Do not add a Roth employer IRA balance to the ordinary traditional IRA year-end input simply because the account name contains SEP or SIMPLE. If historical accounts contain transfers or mixed reporting, reconcile the documents before selecting an input category.

Keep plan limits separate from conversion allocation

For standard SIMPLE salary reductions, the annual limit is $16,500 in 2025 and $17,000 in 2026. The ordinary age-50 catch-up is $3,500 and $4,000 respectively, with a $5,250 catch-up for eligible participants attaining ages 60–63 in either year. Certain employer-size and plan arrangements have different limits. SEP contributions and Solo 401(k) annual additions have compensation and plan-specific rules as well as the published dollar ceilings. The reference table gives starting figures rather than a contribution calculation for every business owner.

Before using the ordinary IRA calculator, list traditional and Roth designations, the SIMPLE first-participation date, employer and personal contributions, year-end values and any intended receiving plan. Retain employer plan documents and custodian confirmations with the tax records. Use the reverse-rollover checklist to record questions and the basis tracker to retain the owner's annual tax history. A calculator cannot determine whether an employer adopted a particular Roth feature or whether a transaction within a restricted SIMPLE period qualifies for an exception.

About the publisher: Moss Ladder

Moss Ladder owns and publishes RothProRata.com, an independent educational website about IRA basis, Roth conversions and Form 8606. The guides connect official sources with invented examples, document checklists and browser-local planning tools.

AI-assisted tools help prepare explanations and software. Numerical allocation examples state their assumptions and are checked with automated calculations. These engineering checks do not constitute independent CPA or Enrolled Agent review, and no professional tax credential is claimed.

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Official sources

Source year and transaction type matter. Citations support the explanation; they do not imply government endorsement.