Any BASIS for an IRA account funded entirely from liquidation of a Qualified annuity

[hamilton30]

Would there be any BASIS in an IRA account funded entirely from the proceeds of a Qualified IRA type annuity originally purchased in a SEP IRA account?

The proceeds were initially part of a ROTH conversion in 2010 and changed to a recharacterized contribution on Form 5498.

If NO, please explain. If YES or Possibly, please explain. Thanks

[dmertz · Accepted solution]

Probably not.  Basis in nondeductible traditional IRA contributions comes either from you making nondeductible traditional IRA contributions to a traditional IRA (a SEP IRA is a type of traditional IRA), reported on line 1 of Form 8606 or from the rollover of after-tax funds from an employer plan (other than an IRA) which would be reported on line 2 of Form 8606 with explanation the next time you are required to file Form 8606 after the rollover.

A Roth conversion is a taxable rollover from a traditional IRA to a Roth IRA and the recharacterization of that Roth conversion simply undid the conversion (or a part thereof) as if it never happened.  If there was no basis in nondeductible traditional IRA contributions before the Roth conversion, there was no basis after the recharacterization.

SEP contributions are always pre-tax employer contributions, so they don't add any basis in nondeductible traditional IRA contributions.

[hamilton30]

That makes things a lot clearer! thanks.

So BASIS (with regard to Traditional IRAs) is an amount that INCREASES with either non-deductible contributions or after-tax rollovers (both consisting of after-tax dollars) and DECREASES with either distributions or Roth conversions?

And can be depleted with multiple conversions?

Are these additions and subtractions reflected on Line 14 of Form 8606 (Total Basis in Traditional IRAs)? And then carried forward by TurboTax to the next year via the IRA worksheet? 

Sorry for the salvo of questions

[dmertz · Accepted solution]

All correct.  If you have basis in nondeductible traditional IRA contributions, because basis is distributed proportionately, you'll always have some until your balance in traditional IRAs at year end is zero.