total value of all traditional IRAs

[janabaran]

Does former employer SEP IRA value count towards "all my traditional IRAs"? I did a backdoor Roth conversion (rollover of my traditional IRA to Roth IRA). These IRAs are separate from the mentioned employer SEP IRA. However, it asks me what is the value of all my non Roth IRAs. Normally this should be 0, I contributed the yearly limit ($6000) to my traditional IRA (with 0 balance) and immediately converted it to Roth IRA.

However, if I add my SEP IRA value to the total value of all my non Roth IRAs then my tax liability increases substantially (while it is expected to not change since the contribution of the Roth conversion  was done with after tax money).
I just want to make sure not reporting my SEP IRA value/basis in this total won't cause any trouble when withdrawing that money in retirement. Thanks!

[janabaran]

Also, I have not received any tax form (5498 or other) for this SEP IRA account. The last contribution to this account was quite a few years ago.

[dmertz]

Yes, your SEP-IRA is a type of traditional IRA that must have its year-end value included in the total value of all traditional IRAs.

Adding the SEP-IRA year end value allows TurboTax to correct the taxable amount of your Roth conversion, previously calculated incorrectly on Form 8606 due to the missing required SEP-IRA value.

Because you have a SEP-IRA, your Roth conversion was not made entirely from after-tax money.  Only a proportionate amount of your basis in nondeductible traditional contributions is included in your Roth conversion, with the rest of your basis in nondeductible traditional IRA contributions remaining in your traditional IRAs in aggregate to be applied to future distributions, reducing the taxable amount of those future distributions, until you have no more money in any traditional IRAs, including the SEP-IRA.

Not reporting your SEP-IRA value would mean filing an incorrect tax return and an underpayment of your true tax liability for 2019.

[janabaran]

thank you for your input!

Lets say I report my SEP IRA end of year basis and value as part of all traditional IRAs. I pay the calculated tax (this does not feel right to me but okay, extra hit of $2K)

Does it mean though that if I would convert my SEP IRA to Roth now there would be less tax to pay than before this backdoor conversion? Does my backdoor Roth conversion increase my traditional IRA basis by $6000?

Just want to make sure I won't be double taxed on my money. 

[janabaran]

Also, changing the basis/value of the IRAs increased my MAGI. I completely fail to understand this. If anything I would expect my MAGI to decrease

[janabaran]

NVM my last comment. I guess the taxable amount of IRA distribution increased the MAGI.

Still would like to double check the basis will be increased by $6K in next tax return. 

[dmertz]

"Does it mean though that if I would convert my SEP IRA to Roth now there would be less tax to pay than before this backdoor conversion?"

No, you would pay less (or at least have less taxable income) on future conversions because your traditional IRAs, including the SEP-IRA retain the portion of your basis in nondeductible traditional IRA contributions that are not applied to your Roth conversion.

"Does my backdoor Roth conversion increase my traditional IRA basis by $6000?"

No.  The issue is that not all of your basis can be applied to your Roth conversion because you have other money in traditional IRAs (the SEP-IRA).  For example, if your SEP-IRA balance is $94,000 and you make a nondeductible contribution of $6,000 to new traditional IRA account, then convert $6,000, only 6%, $360 of your $6,000 basis in nondeductible contributions is applied to the Roth conversion to make $360 of the conversion nontaxable, while the other $5,640 remains with your traditional IRAs to reduce the taxable amount of future distributions.  If your SEP-IRA balance remains at $94,000, you make no other traditional IRA contributions and you convert the entire $94,000 to Roth, $5,640 of that Roth conversion will be nontaxable, consuming the remainder of your basis.

Review Form 8606 Part to see how the taxable amount is determined.  Remember, for the purpose of determining the taxable amount of a traditional IRA distribution, all of your traditional IRAs are treated as if they are a single account.