SEP IRA to Roth IRA

[monica749]

I have put money into a SEP IRA since 2013. The first several years were not deductible but then I formed an LLC and everything became pre tax. In 2020, I transferred all the money into a Roth IRA.  Is this a "rollover" or a "conversion". I got a 1099-R but it is just marked "x" for what tax I owe and in box 7 it says "2". How do I enter the different years and amounts from the IRA that were pre and post tax and how do I figure out what I owe? I understand I have to put this on a 4606 or something like that...?

[dmertz]

Something doesn't sound right with respect to the original contributions.  Were the contributions made to the SEP-IRA SEP contributions?  The only SEP contributions permitted are deductible contributions, which for a self-employed individual would be claimed as a self-employed retirement deduction.

Some IRA custodians permit regular personal contributions to be made to a SEP-IRA account, but the custodian would have to have been explicitly told that these were not SEP contributions, otherwise they would be reported incorrectly on Form 5498.

Forming an LLC by itself doesn't change anything with regard to making such contributions.  Choosing to be treated as an S corp would change things, but forming an LLC does not require to you choose to have the company treated as an S corp.  If you did choose to be an S corp, SEP contributions are deductible on the S corp's income tax return instead of as a self-employed retirement deduction on your individual tax return.

[monica749]

The ones that weren't deductible were just to an IRA not a SEP IRA

[dmertz]

OK, that makes more sense.  You were required to have filed Form 8606 to report the nondeductible traditional IRA contribution for each year that you made such a contribution.  The amount on line 14 of each of these forms carries forward to line 2 of the next Form 8606 required to be filed.

In 2020 TurboTax, after entering the Form 1099-R reporting the Roth conversion, click the Continue button on the Your 1099-R Entries page (CD/download version) or the Review Your 1099-R Items page (online version), then indicate that you made nondeductible contribution and confirm or enter your basis in nondeductible traditional IRA contributions shown on line 14 of your last filed Form 8606.  Also make sure to enter your year end balance in traditional IRAs, including SEP, SIMPLE and rollover IRAs.  2020 TurboTax will automatically prepare 2020 Form 8606 Parts I and II to determine the taxable and nontaxable amounts of the Roth conversion.

[monica749]

OK I think I get it now. the ones in prior years were in a different account called a rollover IRA. Then I opened the SEP IRA and that was all pre tax. So now I have to adjust the 1099R with that 46 form so that basically everything is taxable now. And then going forward do I put it in the IRA and roll it into the Roth and put it as nondeductible so that I can just pay the tax moving forward?

[SamS1]

Couple things.  You will need to know how much of the SEP IRA was funded with non-deductible contributions.  You will not pay tax on those amounts.  My guess is box 2b is marked "Taxable amount not determined".   After you have logged in and are in your return in TurboTax Online:

• Go to Search at the top of the screen.
• then enter Form 1099-R in the search box. 
• You will see a Jump To function that will take you to the 1099-R input screens. 
• Then add a new 1099R and manually enter your 1099R.
• At the financial services screens, click "Change how I enter my form" then "Type it myself"
• After entering your 1099R information, Continue
• Uncommon situations - None  Continue
• Rollover or Conversion - I converted all or some of it to a Roth IRA  Continue
• Did you convert it all?  Yes.  Continue
• Back to 1099R summary page.  Continue
• No to Disaster Continue
• Non deductible Contributions - Yes Continue
• Basis - Here is where you will need the non deductible SEP IRA contributions Enter amount or do Easy Guide. Continue
• Value of Traditional IRA on 12/31/20 - should be zero if you rolled everything to the Roth in 2020.  Continue

You can verify your entry by looking at your Form 1040 line 4 or 5:

1. Click on "Tax Tools" in the left menu
2. Click "Tools"
3. Click "View Tax Summary" in the Tool Center window
4. Click on "Preview my 1040" on the left.  Look for lines 4a and 4b
5. Then Back when finished.

[monica749]

I have realized it was all deductible now. I didn't roll over the nondeductible it turns out but I still can't figure out where I put that it needs to be taxed bc it is still saying I owe no tax on it but I did import it so maybe if I do it myself that will help.. sorry I have no idea what I'm doing! thank you

[SamS1]

Couple things.  You will need to know how much of the SEP IRA was funded with non-deductible contributions.  You will not pay tax on those amounts.  My guess is box 2b is marked "Taxable amount not determined".   

• After you have logged in and are in your return in TurboTax Online:  
• Go to Search at the top of the screen. then enter Form 1099-R in the search box. 
• You will see a Jump To function that will take you to the 1099-R input screens. 
• Then add a new 1099R and manually enter your 1099R.
• At the financial services screens, click "Change how I enter my form" then "Type it myself"
• After entering your 1099R information, Continue Uncommon situations - None  Continue
• Rollover or Conversion - I converted all or some of it to a Roth IRA  Continue
• Did you convert it all?  Yes.  Continue
• Back to 1099R summary page.  Continue
• No to Disaster Continue
• Non deductible Contributions - Yes Continue Basis - Here is where you will need the non deductible SEP IRA contributions Enter amount or do Easy Guide. Continue
• Value of Traditional IRA on 12/31/20 - should be zero if you rolled everything to the Roth in 2020.  Continue
• You can verify your entry by looking at your Form 1040 line 4 or 5:
• Click on "Tax Tools" in the left menu
• Click "Tools"
• Click "View Tax Summary" in the Tool Center window
• Click on "Preview my 1040" on the left.  Look for lines 4a and 4b Then Back when finished.     

[monica749]

the whole amount is taxable but then it also has a box 7 that says "2" and then I get this "congratulations you don't have to pay tax" on this

[monica749]

OK I think I figured out the problem, when I say I "rolled" it all over I owe no tax but if I say I "converted" it then I do. SO am I supposed to call it a "conversion?"

[dmertz]

Yes, this is a Roth conversion.  I should have addressed that part of your question earlier.

[monica749]

I am still looking at this problem. In 2017 I put money into IRA and SEP IRA and did not deduct it on turbotax and did not create an 8606 form but the bank did create a 5498. On the IRA deduction on my 1040 it says 0. Am I supposed to create a 8606 form now for all those years or just list the amounts on my current 1040? 

[macuser_22]

An IRA non-deductible contribution must be report on a 8606 for the tax year that it was contributed.    More then likely you contributed to an Traditional IRA and did not deduct it but failed to enter it into the IRA contribution  interview and say is was a non-deductible contribution to generate a 8606.

[dmertz]

You'll need to construct and file the Forms 8606 that you failed to file, starting with the oldest nondeductible contribution and working forward since each Form 8606 feeds the next.