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lucasromine
New Member

Backdoor Roth: nondeductable SEP IRA contribution from 2015 converted to roth IRA (backdoor) in 2016

Im trying to get line 15b on my 1040 form decreased.

I made a nondeductable SEP IRA contribution for 2015 (actual contribution made 3/15/16) and then converted the entire amount to roth IRA (conversion done 3/24/16).

This conversion is showing up on line 15b of my 1040 as a large taxable event.

In addition, I made nondeductable 2016 contributions to my traditional IRA's (mine and spouse; $5500 each, $1100 total) and converted those to roth in the same year.  I have these corrected to where they are NOT showing up on line 15b of my 1040.

Can someone assist me?
1 Best answer

Accepted Solutions
dmertz
Level 15

Backdoor Roth: nondeductable SEP IRA contribution from 2015 converted to roth IRA (backdoor) in 2016

A regular nondeductible traditional IRA contribution for 2015 should have been reported on your 2015 tax return and your 2015 tax return should have included Form 8606 with the contribution being included on line 14 for carrying forward to line 2 of your 2016 Form 8606.

In 2016 TurboTax, be sure to click the Continue button on the Your 1099-R Entries page, indicate that you made nondeductible traditional IRA contributions, then enter or confirm the amount that carried forward from line 14 of your 2015 Form 8606.  The taxable amount of your 2016 Roth conversion will be calculated on the lines that follow, or perhaps on a separate worksheet, indicated by an asterisk.  If your IRA accounts, including your SEP IRA account, had a nonzero balance on December 31, 2016, at lease some of your 2016 Roth conversion will be taxable, perhaps a large amount depending on that year-end balance.

You said that you contributed your spouse's IRA contribution to your IRA account.  I hope that's not what you meant to say.  Your spouse's contribution must be made to your spouse's own IRA account, not you your account.  IRAs are individual accounts and each individual carries their own separate basis in nondeductible traditional IRA contributions.

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4 Replies
macuser_22
Level 15

Backdoor Roth: nondeductable SEP IRA contribution from 2015 converted to roth IRA (backdoor) in 2016

I do not believe that a SEP can have after-tax (non-deductible)  contributions.  They are always before tax.  
 
Also when determining the non-taxable part of a Roth conversion, the Traditional IRA basis must be pro-rated over the current distribution/conversion and the total 2016 year end value of all Traditional, SEP and SIMPLE IRA's so only a portion might be non-taxable.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
dmertz
Level 15

Backdoor Roth: nondeductable SEP IRA contribution from 2015 converted to roth IRA (backdoor) in 2016

Nondeductible SEP-IRA contributions are subject to penalty and do not create basis in nondeductible traditional IRA contributions.  However, it's possible that this was a regular personal IRA contribution made to a SEP-IRA account (if the custodian permits), not a SEP contribution.
lucasromine
New Member

Backdoor Roth: nondeductable SEP IRA contribution from 2015 converted to roth IRA (backdoor) in 2016

Correct. This was a personal IRA contribution to a SEP IRA. How can I show this in my tax return?
dmertz
Level 15

Backdoor Roth: nondeductable SEP IRA contribution from 2015 converted to roth IRA (backdoor) in 2016

A regular nondeductible traditional IRA contribution for 2015 should have been reported on your 2015 tax return and your 2015 tax return should have included Form 8606 with the contribution being included on line 14 for carrying forward to line 2 of your 2016 Form 8606.

In 2016 TurboTax, be sure to click the Continue button on the Your 1099-R Entries page, indicate that you made nondeductible traditional IRA contributions, then enter or confirm the amount that carried forward from line 14 of your 2015 Form 8606.  The taxable amount of your 2016 Roth conversion will be calculated on the lines that follow, or perhaps on a separate worksheet, indicated by an asterisk.  If your IRA accounts, including your SEP IRA account, had a nonzero balance on December 31, 2016, at lease some of your 2016 Roth conversion will be taxable, perhaps a large amount depending on that year-end balance.

You said that you contributed your spouse's IRA contribution to your IRA account.  I hope that's not what you meant to say.  Your spouse's contribution must be made to your spouse's own IRA account, not you your account.  IRAs are individual accounts and each individual carries their own separate basis in nondeductible traditional IRA contributions.

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