Have a retired client with a Traditional IRA and a SEP IRA. She has a basis in the SEP however the Traditional IRA was employer-funded and pre-tax so no basis.
Both 1099R forms have the IRA/SEP/SIMPLE box checked. The client withdrew $10k from Traditional IRA. My understanding is this should be fully taxable however the program insists on reducing the SEP IRA. Any insight? If I uncheck the IRA/SEP/SIMPLE box the IRA becomes fully taxable.
Thanks.
I've heard of an IRA being funded by an employer . . . through paycheck deductions. The taxpayer should have been claiming IRA contributions each year on their 1040 which would either result in a tax deduction or tax basis in the IRA (reported and accumulated on Form 8606 each year). My first step would be to go try to unravel that mess.
However, I've never heard of a SEP-IRA with tax basis (but I've not actually seen a SAR-SEP, they went extinct before I got into this business, so maybe it has to do with that?)
For purposes of determining the amount of tax basis recovered tax-free when taking an IRA distribution, all of your IRAs are considered to be one big IRA. This includes SEP-IRAs and SIMPLE-IRAs. See Form 8606 and instructions.
Rick
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