Conversion of long-existing SEP IRA to Roth

[mtg1909]

I've seen a how-to for entering the conversion of a traditional IRA immediately to a Roth (i.e., a backdoor conversion), but I need help ensuring that I can enter the conversion of a long-existing SEP IRA (containing only pre-tax (i.e., deductible) contributions) to a Roth IRA.  

How do I enter it?  I know I will pay taxes on the entire converted amount.

TY

[AnnetteB6]

It should just be a matter of entering the Form 1099-R that will be generated when you take the distribution from the SEP-IRA and convert the funds to a Roth IRA.

After you enter Form 1099-R, there will be follow-up questions asking what you did with the money.  As part of those questions, you will indicate that it was converted to a Roth IRA.  You should also be asked about the basis (non-deductible contributions) of the SEP-IRA since that will determine the amount that will be included as taxable income for the conversion.  Since your basis will be zero, the entire conversion will be taxable.

If you run into any difficulty or have further questions, you can always post them here for some help.

[mtg1909]

Thanks!

[mtg1909]

Follow-up question:

I do not need to enter anything from the associated Form 5498 concerning the Roth IRA conversion amount, which matches the gross distribution/taxable amount from the Form 1099-R, correct?

[fanfare]

You will be much happier in retirement with your retirement funds in a self-directed Roth IRA instead of a SEP IRA.

@mtg1909 

[AmyC]

@mtg1909 Correct. The 5498 is not entered into the program but is kept with your financial records.

[wzetzman]

I believe I have filled in all the 1099R information correctly.  I know I will be charged the taxes on the conversion. How do I eliminate the 10% penalty that is automatically computed?

[DanaB27]

If the full amount was converted then you shouldn't get the 10% penalty calculated. Did you have any taxes withheld?

If you had taxes withheld and didn't replace the funds with other money to make a full conversion then this is considered to be a cash distribution and subject to the 10% early withdrawal penalty if you are under 59 1/2.

To enter the 1099-R conversion: 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. Continue through the questions.

@wzetzman 

[curiousgeorge06]

Hi! I converted the entire amount in a (pretax) SEP-IRA to a Roth IRA. After entering the 1099-R information and specifying that the entire amount was converted to a Roth IRA, Turbotax incorrectly treats this conversion as nontaxable. How can I fix this?

[RobertB4444]

The system thinks that you converted the rollover to a traditional IRA.  You need to go back through the questions and make sure that you specified that it was rolled over into a Roth IRA.

In addition the 1099-R needs to be correct.  The amount in box 2 should be the same as the amount in box 1 and the code in box 7 should be '2'.

@curiousgeorge06