SEP IRA contribution to existing IRA – Custodian RULES!
Self employed client – sole proprietor – only employee – wants to make 2014 contribution to existing IRA account. Called custodian (twice to see if I could get a different answer). The custodian of the IRA said they would accept the contribution if we resubmitted it with a revised account application stating (or is that restating) it was a SEP IRA account. At first glance other than the paperwork chase, this seems benign, but I was wondering about another other tax ramifications. The client is tracking a small after tax basis in the IRA account.
Thank You RoN
Permalink Submitted by Alan - IRA critic on Mon, 2015-04-13 22:19
A SEP contribution can only be made to a SEP IRA which includes provisions allowing such contributions under different rules than a basic traditional IRA. Other IRA accounts do not include these provisions, but it is possible to roll the other IRA into the SEP IRA if the client only wants to maintain one account. The basis in the current IRA is tracked on Form 8606, and the SEP IRA balance is included in determining the % of basis in all of the client’s non Roth IRA accounts regardless of the number of IRAs. This determines the taxable amount of distributions including conversions to Roth.