SEP Accounts and Recharacterizations Highlight Mailbag

Thursday, September 29, 2011

By Marvin Rotenberg, IRA Technical Expert

This week’s Slott Report Mailbag includes questions about converting part of an active SEP (Simplified Employee Pension) to a Roth IRA and the recharacterization process as it concerns tax returns. As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find out at this link.

1.

Can an individual convert part of an active SEP to a Roth IRA?

Thanks,

Thomas Keating

Answer:
As long as the SEP agreement allows you access to the funds (and most SEPs will allow you access), you can do a conversion from the SEP account. If you will be receiving future SEP contributions in the account, make sure that you leave enough money in the account to keep it open.

2.

Hello Mr. Slott and Company,

I just recharacterized my 2010 IRA conversion in 2011. My broker says they will give me a 1099R (code N) for my Roth account as well as a 5498 for my IRA account in January 2012. My accountant says she needs an amended 5498 for 2010. My broker says they only give amended returns for mistakes. I am confused.

What legal forms from my broker do I need in order to have a basis to file an amended return???

Lee Kourtoglou

Answer:
The broker is correct. There is no amended 5498 issued for a recharacterization. The reporting instructions for a recharacterization can be found in the instructions for Form 8606. (You can find the instructions on the IRS web site, www.irs.gov. Click on Forms and Publications.) You will need to attach a note to the return explaining the recharacterization. The 1099R and 5498 that you receive in 2012 will back up the information on your return or amended return that you file now.

 

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