SEP, Traditional, and Non-Deductible Rollover – Combine?
I am in the process of rolling over a SEP, Traditional (Rollover) IRA, and Non-Deductible IRA and am wondering if I can’t combine these. Based on previous postings I am thinking I can roll the rollover traditional into the SEP and he can keep making contributions to that, but that I may need to keep the non-deductible seperate for future reporting and possible conversions.
Does this sound correct?
Permalink Submitted by Alan Spross on Thu, 2008-02-28 20:28
You could combine all three. There is no reason to keep the account funded by non deductible contributions separate because traditional and SEP IRAs are considered as one combined account for tax purposes.
That means that any distribution or Roth conversion will be taxed the same regardless of which of these accounts is the source of the distribution or conversion. All this is reported on Form 8606 and you will note that Part I of that form requires the entry of total values of all of them in computing the taxable percentage of a distribution.
Permalink Submitted by Jason Veinot on Thu, 2008-02-28 20:38
Thanks. We will be converting the non-deductible in 2010 and I was under the assumption that it had to come out in a percentage weighted distribution? For example, if you have a $100,000 ira and $80,000 is non-deductible then 80% of the distribution/conversion would not be taxed but if you had a $1 million ira and $80,000 wasnt deductible then you could only have 8% of the conversion be tax “free”.
So if I take a smaller non-deductible IRA and place it into a larger SEP then my potential future tax free conversion percentage amount may decrease substantially.
True?