backdoor IRA and tax

[spiritrider]

You probably have not really been getting different opinions (just different actions to take). You have been all over the map with the way you have been describing the situation. If I understand it correctly the following actions have/will happen, all this year 2017.

1. You assumed ownership and converted to a Roth $3,700 inherited pre-tax traditional IRA assets.


2. You made a $6,500 2016 non-deductible traditional IRA contribution, will make a $6,500 2017 non-deductible traditional IRA contribution and will do a Roth Conversion of both of those contributions and any earnings.

There are two filings that both Johanna and your CPA seem to agree with:

1. You will file a 2016 Form 8606 to report the 2016 $6500 non-deductible contribution as basis. You do this because this was a 2016 contribution even though it was made in in 2017. There is no 2016 taxable impact of this reporting.


2. You will file a 2017 Form 8606 to report the 2017 $6,500 non-deductible contribution to add to the basis (now $11,000) and report the $3,700 and any earnings on the non-deductible contributions as taxable amounts. This will flow through to your 1040 as taxable income.

The difference is whether an 1040X amended return is required or not. The Form 8606 instructions are ambiguous on whether a 1040X is required or not. Most financial professionals, tax professionals and individuals have been filing solo 8606 forms for decades without problem. However, there have been some recent insignificant percentage, but persistent anecdotal reports of the IRS requesting resubmittal of the Form 8606 with an accompanying Form 1040X. This has caused some professionals to supply the 1040X proactively to avoid the panic calls from the client.

So the short answer is that both Johanna and your CPA are probably both right from their experience and perspective.

[lmk1966]

I will let my CPA handle it and he is the one who is saying that we have to do tax amendment and that we can do it only after April 15th.

He will do everything, not me...I am just surprised getting such different opinions

[jfoxcpacfp]

You cannot do a conversion in 2017 for a prior year. A conversion is done on a calendar year basis. #3 and #4 reference a conversion done in 2017. They will be reported in 2017, no amendment needed. If you designated the TIRA contribution for 2016, you will need to file an 8606 for 2016, not a big deal. If you designate it for 2017, you'll just file an 8606 next year. I do not see any reference above to a 2016 TIRA contribution.

Since you already have a CPA, why don't you just let him/her handle it?

[lmk1966]

I do not know...That is what he told me we have to do..

Also I posted on WCI and received response that I do have to do tax amendment

 

 

355 lmk1966 | March 11, 2017 at 7:07 pm

Here is my situation:

1. On 01/31/16 I had NO money in traditional IRA and NO roth IRA
2. On 01/10/17 I transferred 3.7k from my deceased husbands account to my traditional IRA (?inherited)
3. On 03/10/17 I converted 3.7k to roth IRA for 2016
4.. Now I deposited 6.5k (I am 50 yo) to traditional IRA and plan do backdoor conversion to roth IRA for 2016
5. Little bit later plan to do backdoor conversion of 6.5 k to roth IRA for 2017

Question: how do I fill out 8606 for 2016, especially that I already filed taxes?
What numbers do I put on each line in form 8606?

Thank you

Reply

The White Coat Investor | March 11, 2017 at 9:47 pm

Well, if you already filed taxes and didn’t report your 2016 traditional IRA contribution you’ll need to do a 1040X and an 8606 for 2016. Just follow the line by line instructions. This post should be particularly helpful:

https://www.whitecoatinvestor.com/late-contributions-to-the-backdoor-roth-ira/

If you have a question about a particular line after reading the instructions, I’ll try to help. If the whole thing is overwhelming to you, might be worth hiring a pro to help you with the forms.

Reply

[jfoxcpacfp]

lmk1966 wrote:

My CPA told me today that we will have to do amendment to my tax report (and we have to do it after April 15th).

I had impression that we do not have to do tax amendment but apparently we have to…

Click to expand...

What is the purpose of the amended return?

[lmk1966]

My CPA told me today that we will have to do amendment to my tax report (and we have to do it after April 15th).

I had impression that we do not have to do tax amendment but apparently we have to...

[jfoxcpacfp]

lmk1966 wrote:

and do NO  transfers what’s forever of 6.5k for 2016 ?

Click to expand...

I am sorry but I do not know what this means. I think the answer is that you are correct, if you do not designate the $6,500 for 2016 but for 2017 instead, you would not have to file an 8606 for 2016. Of course, you would lose a full year's ability to contribute to a backdoor Roth.

[lmk1966]

Another scenario: what if I move 6.5 k  (backdoor transfer) for year 2017 and do NO  transfers what’s forever of 6.5k for 2016 ?

Since as of 12/31/16 I had no money  on any accounts, do I still have to fill out 8606 form for 2016?

(as you remember 3.7k was transferred to my TIRA in January 2017 from my deceased husbands account and few days ago I converted 3.7k to Roth IRA)

I am willing to omit transfer just not to mess with 8606 this year.

 

Thanks

[lmk1966]

Another scenario: what if I move 6.5 k  (backdoor transfer) for year 2017 and do NO  transfers what's forever of 6.5k for 2016 ?

Since as of 12/31/16 I had no money  on any accounts, do I still have to fill out 8606 form for 2016?

(as you remember 3.7k was transferred to my TIRA in January 2017 from my deceased husbands account and few days ago I converted 3.7k to Roth IRA)

I am willing to omit transfer just not to mess with 8606 this year.

 

Thanks

[lmk1966]

When do I report 3.7k ? (inherited from my husband account and deposited to my TIRA on 1/10/17)

I converted it to Roth IRA for 2016 on 3/10/17

 

[jfoxcpacfp]

You are moving the inherited IRA into your own name, correct? (That is what you should do). When you convert to a Roth IRA, you will report the amount you convert on page 2 of Form 8606.

The $6,500 is all that goes on the 8606 for this year given what you've posted so far. Sorry for the delay, I've been reviewing tax returns and in appts all day.

[DMFA]

Line 6 is only money that was in IRAs on 12/31/2016, so if you didn't have it until January 2017, then it should be $0.

[lmk1966]

Johanna,

this is how my transfer look on Fidelity site

01/10/2017	TRADITIONAL IRA 229151870	IRA- TFR FROM SPOUSE VS 226-187125-1 (Cash)	$3,722.83
IRA- TFR FROM SPOUSE VS 226-187125-1 (Cash) Amount $3,722.83

If I fill out 8606 form for 2016, do I show 3.7k and 6.5 k ?

Or 3.7k considered "inherited money" and do not have to be put on 8606?

thanks

[lmk1966]

Fill out 8606  (based on my earlier post)...Does it look right ?

[lmk1966]

3.7k comes as transfer to my TIRA from my deceased husband account (transfer to my TIRA account performed on 01/10/17)