Question

SEP IRA to Roth IRA

Forum|Forum|5 years ago
February 17, 2021
1 reply
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I have put money into a SEP IRA since 2013. The first several years were not deductible but then I formed an LLC and everything became pre tax. In 2020, I transferred all the money into a Roth IRA. Is this a "rollover" or a "conversion". I got a 1099-R but it is just marked "x" for what tax I owe and in box 7 it says "2". How do I enter the different years and amounts from the IRA that were pre and post tax and how do I figure out what I owe? I understand I have to put this on a 4606 or something like that...?

D

dmertz

Employee

Something doesn't sound right with respect to the original contributions. Were the contributions made to the SEP-IRA SEP contributions? The only SEP contributions permitted are deductible contributions, which for a self-employed individual would be claimed as a self-employed retirement deduction.

Some IRA custodians permit regular personal contributions to be made to a SEP-IRA account, but the custodian would have to have been explicitly told that these were not SEP contributions, otherwise they would be reported incorrectly on Form 5498.

Forming an LLC by itself doesn't change anything with regard to making such contributions. Choosing to be treated as an S corp would change things, but forming an LLC does not require to you choose to have the company treated as an S corp. If you did choose to be an S corp, SEP contributions are deductible on the S corp's income tax return instead of as a self-employed retirement deduction on your individual tax return.

M

monica749Author

The ones that weren't deductible were just to an IRA not a SEP IRA

D

dmertz

Employee

OK, that makes more sense. You were required to have filed Form 8606 to report the nondeductible traditional IRA contribution for each year that you made such a contribution. The amount on line 14 of each of these forms carries forward to line 2 of the next Form 8606 required to be filed.

In 2020 TurboTax, after entering the Form 1099-R reporting the Roth conversion, click the Continue button on the Your 1099-R Entries page (CD/download version) or the Review Your 1099-R Items page (online version), then indicate that you made nondeductible contribution and confirm or enter your basis in nondeductible traditional IRA contributions shown on line 14 of your last filed Form 8606. Also make sure to enter your year end balance in traditional IRAs, including SEP, SIMPLE and rollover IRAs. 2020 TurboTax will automatically prepare 2020 Form 8606 Parts I and II to determine the taxable and nontaxable amounts of the Roth conversion.