Form 8606 with Backdoors for both Traditional IRA and SEP-IRA

[jacktaxmoney]

Hi,

In Form 8606, Line 1, should that include all traditional IRA accounts (including SEP-IRA which I understand is a type of traditional IRA)?

I started doing freelancing on the side 4 years ago.  I have made contributions to my SEP-IRA based on my 1099 income.  Every year, I made sure the account balance is $0 (or very closed to it) for both my SEP-IRA and Traditional IRA by immediately converting all the after tax contributions to my Roth IRA (backdoor conversion).  However, I just discovered that Turbotax has not generated Form 8606 for the past 4 years (I neglected to answer all the questions under Personal>"Choose What I work on">"Deduction and Credits">"Retirement & Investments" in Turbotax even though I imported all tax forms from my IRA custodian).   I am trying to find out how to properly document Form 8606 so it doesn't cause problems for me in the future.  Thanks.

[dmertz · Accepted solution]

"In Form 8606, Line 1, should that include all traditional IRA accounts (including SEP-IRA which I understand is a type of traditional IRA)?"

The total year-end values of these accounts goes on line 6, not line 1.  Nothing about a SEP IRA goes on line 1 because SEP contributions are employer contributions that cannot be nondeductible contributions.

If your regular traditional IRA contributions were nondeductible and entered, into TurboTax would have generated Form 8606.  In any year that you did a Roth conversion, TurboTax would have generated Form 8606 Part II to report the Roth conversion upon you entering the Form 1099-R that reports the conversion and you indicating that the distribution was converted to Roth.  Lack of a Form 8606 implies that you failed to enter at least the Roth conversions (or failed to identify them as Roth conversions) and likely underreported income since, due to having made SEP contributions, some portion of any amount converted would have been taxable.  

If your regular traditional IRA contributions were deductible, they would have been reported on Schedule 1, not on line 1 of Form 8606.

The statute of limitations for the IRS to assess taxes for underreporting income is normally 3 years, but extends to 6 years if the underreporting was substantial.