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Level 1

How do I input a Roth characterization to a SEP IRA on Home and Business version?

How do I re-characterize a Roth contribution to a SEP IRA.  I can't re-characterize to a traditional IRA because I exceed the income limit for the tax deduction.

4 Replies
Level 20

How do I input a Roth characterization to a SEP IRA on Home and Business version?

You cannot recharacterize a Roth IRA contribution to be a SEP IRA contribution (although you could recharacterize it to be a regular traditional IRA contribution to the SEP IRA account, if your SEP IRA custodian permits regular, personal contributions to your SEP IRA account; of course it would be a nondeductible contribution).  Roth IRA contributions are personal contributions while SEP IRA contributions are employer contributions.  (A self-employed person is both employer and employee for the purpose of making retirement contributions.)

As I mentioned, you can recharacterize the Roth IRA contribution to be a nondeductible regular traditional IRA contribution.  You could also request a return of the Roth IRA if you don't want to make a nondeductible traditional IRA contribution, but any earnings attributable to the returned contribution would be taxable and potentially subject to an early-distribution penalty.

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Level 1

How do I input a Roth characterization to a SEP IRA on Home and Business version?

I already successfully completed the recharcterization.  I am self-employed.
Level 20

How do I input a Roth characterization to a SEP IRA on Home and Business version?

As I said, a Roth IRA contribution that is recharacterized becomes a regular traditional IRA contribution, even if recharacterized to a SEP IRA account.  It does not become a SEP IRA contribution.
Level 20

How do I input a Roth characterization to a SEP IRA on Home and Business version?

Ignoring whether or not such a recharacterization is permissible, you would report the amount originally contributed to the Roth IRA as a SEP IRA contribution instead, and not report any Roth IRA contribution.  Under the circumstances, TurboTax will not prompt you for an explanation statement regarding this, so you will need to prepare an explanation separately and mail it with your tax return since the Form 5498 from the SEP IRA custodian will not show any SEP IRA contribution to corroborate your self-employment contribution deduction.  The Form 5498 will only show an recharacterization contribution.