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I am currently a graduate student in software while doing a self employed contracting gig. As such, I've been using primarily my SEP IRA and Traditional IRA accounts to avoid the heavy self employment taxes.

I'll be graduating in May of 2018 and plan on leaving my contracting gig in order to go fulltime W2 with another company. I would like to take this transitory period as an opportunity to get the majority of my savings into a Roth, and as such I am looking at a backdoor.

But I'm wondering - since the funds were originally from self-employed income AND I took the deductions, will I get hit with self-employement taxes during a backdoor to a Roth?

Thank you very much.

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You didn't get out of the self-employment tax portion of your tax bill by using an SEP-IRA. Self employment tax (both Employer and Employee side) is due based on pre-retirement earnings (as is your 401(k) contribution or Traditional IRA contribution when not self-employed; though SEP is really an employer side contribution, in this case it ends up being similar when it's your own income.)

Note the instructions for Schedule SE; they do not include a deduction for the SEP-IRA contribution. That contribution reduced your income tax, but not your self-employment tax.

As such, there would be no additional self employment taxes due (as you would have already paid these).

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    HUH, so I guess I fundamentally misunderstood the tax situation to begin with. However, it appears the end result is that I won't be hit again, at very least. Thank you!
    – Christopher Henderson
    Apr 12, 2017 at 21:27

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