I have a SEP IRA with about 125k in it and I'm thinking of rolling it into a Roth so that I can have ready access to the money if I need it before age 59.5 (i.e. I'd like to keep my FIRE options open). My understanding is that
- I have to pay the taxes on the rolled over funds in the year I roll them over (but I'd rather not take the entire tax hit at once)
- I can't access the rolled over funds without penalty for five years
- I can only do one rollover (total across all accounts) each year
Assuming it doesn't bump my tax bracket, I'm wondering if there are any downsides to doing a partial rollover of about ~$20k per year for the next 6 or 7 years (I'm assuming there'll be some growth in there too).
I'm also wondering whether I need to have a separate Roth for each year's rollover so there's no question in year 7 if I withdraw money that I'm pulling year 1's money and not year 6's.