If you are self-employed or small business owner and utilize the SEP IRA, it will have zero impact as to the ability to perform a Backdoor Roth IRA if you are over the contribution limits to directly contribute to a Roth.
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About IRA Financial:

IRA Financial was founded by Adam Bergman, a former tax and ERISA attorney who worked at some of the largest law firms. During his years of practice, he noticed that many of his clients were not even aware that they can use an IRA or 401(k) plan to make alternative asset investments, such as real estate. He created IRA Financial to help educate retirement account holders about the benefits of self-directed retirement plan solutions.

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Many individuals who are self-employed or small business owners often opt for SEP IRAs (Simplified Employee Pension Individual retirement account) as a way to save for retirement. However, they may also be interested in doing a Backdoor Roth IRA conversion to take advantage of tax-free growth and withdrawals in retirement.

But can you do a Backdoor Roth conversion if you already have a SEP IRA? The short answer is yes, but it can be more complex and may not be the best option for everyone.

A Backdoor Roth IRA conversion is when an individual makes a non-deductible contribution to a traditional IRA and then immediately converts it to a Roth IRA. This allows individuals who may not be eligible to directly contribute to a Roth IRA due to income limits to still take advantage of tax-free growth.

However, having a SEP IRA can complicate the process because SEP IRAs, along with other traditional IRAs, are subject to the pro-rata rule. This means that any conversion from a traditional IRA to a Roth IRA would be subject to taxes based on the ratio of pre-tax contributions to the total value of all traditional IRAs, including SEP IRAs.

For example, if an individual has $100,000 in a SEP IRA, and they make a $6,000 non-deductible contribution to a traditional IRA and immediately convert it to a Roth IRA, only 6% of the conversion ($360) would be tax-free. The remaining 94% ($5,640) would be subject to taxes at the individual’s ordinary income tax rate.

This can be a significant tax burden and may not be worth it for some individuals, especially those who have high balances in their SEP IRA. In this case, it may be better to explore other retirement savings options.

However, if an individual has a smaller balance in their SEP IRA or has already maxed out their SEP IRA contributions, a Backdoor Roth conversion may still be a viable option. It’s important to consult with a financial advisor or tax professional to determine if it’s the right choice for your specific financial situation.

In conclusion, individuals with SEP IRAs can do a Backdoor Roth conversion, but it’s important to understand the potential tax consequences and weigh the benefits against other retirement savings options.