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Accounting for taxable earnings on a recharacterized BDR IRA?

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  • #16
    Originally posted by TeachMeThings View Post

    I cannot overstate how much I appreciate people responding and trying to help me out, but your smug responses are starting to get under my skin. Respectfully, if I understood how to complete the form or understood the IRS's instructions for completing the form I wouldn't be asking these questions. You seem to have been doing this a while. I'm fairly new. I'd love to be in your shoes some day. Your wiseacre approach is not helping me understand how to complete this form properly.

    I understand I need to pay taxes on my earnings. I understand how to fill out a 8606 for the average BDR IRA all done in the appropriate calendar year and without earnings. Unfortunately, my situation this year isn't that simple and looking for someone who is willing to walk-the-dog vice telling me how dumb I am.
    my apologies for being smug

    if you told us the contribution and ultimate Roth conversion amounts I could tell you what to put on every line but I guess I'm more of a "teach a man to fish" type of guy

    line 1 equals contributions equals the amount you originally deposited to the Roth IRA. Presumably $6000

    Comment


    • #17
      Originally posted by TeachMeThings View Post

      I cannot overstate how much I appreciate people responding and trying to help me out, but your smug responses are starting to get under my skin. Respectfully, if I understood how to complete the form or understood the IRS's instructions for completing the form I wouldn't be asking these questions. You seem to have been doing this a while. I'm fairly new. I'd love to be in your shoes some day. Your wiseacre approach is not helping me understand how to complete this form properly.

      I understand I need to pay taxes on my earnings. I understand how to fill out a 8606 for the average BDR IRA all done in the appropriate calendar year and without earnings. Unfortunately, my situation this year isn't that simple and looking for someone who is willing to walk-the-dog vice telling me how dumb I am.
      this is why learning the vernacular is so important.
      like medicine, exact words have exact meanings.

      you asked: Line 1 of form 8606 (Enter your nondeductible contributions to traditional IRAs for 2020, including those made for 2020 from January 1, 2021, through April 15, 202)
      -- you are contributing $6000 ONLY to a nondeductible tIRA.
      -- earnings, such as your example of going to $6010, are not contributions. so line 1 is just 6000.

      Comment


      • #18
        Originally posted by jacoavlu View Post

        my apologies for being smug

        if you told us the contribution and ultimate Roth conversion amounts I could tell you what to put on every line but I guess I'm more of a "teach a man to fish" type of guy

        line 1 equals contributions equals the amount you originally deposited to the Roth IRA. Presumably $6000
        I promise, I'm still attempting to fish. I contributed $6000 directly to a rIRA throughout 2020. Recognizing I was over the income-limits, the recharacterization to a tIRA was done in 2021 for $6930. I then converted the tIRA to a rIRA for $6885.

        Comment


        • #19
          Originally posted by TeachMeThings View Post

          I promise, I'm still attempting to fish. I contributed $6000 directly to a rIRA throughout 2020. Recognizing I was over the income-limits, the recharacterization to a tIRA was done in 2021 for $6930. I then converted the tIRA to a rIRA for $6885.
          Like I said earlier for purposes of the form 8606 you forget that the Roth contribution and re-characterization ever happened. Just pretend as if you did it right.

          Line 1, 6000

          So what are you getting hung up on next?

          Comment


          • #20
            Originally posted by jacoavlu View Post
            Like I said earlier for purposes of the form 8606 you forget that the Roth contribution and re-characterization ever happened. Just pretend as if you did it right.

            Line 1, 6000

            So what are you getting hung up on next?
            I think my 2020 forms and 2021 forms will look quite different...

            2020:
            1: 6000
            2: 0
            3: 6000
            4: 6000
            5-13: 0
            14: 6000
            Didn't do a conversion in 2020 so skip Part II
            Didn't have a distributions so skip Part III

            2021:
            1: 6000
            2: 6000
            3: 12000
            4: 0
            5: 12000
            6: 0
            7: 0
            8: 12,885 (6,885+6,000)
            9: 12,885
            10: 0.931
            11: $11,996
            12: 0
            13: 11,996
            14: 4
            15a-c: 0
            Part II:
            16: 12,885
            17: 11,996
            18: 889
            Didn't have a distribution so skip Part III

            Comment


            • #21
              Have you already done 2021 backdoor Roth? Or is this hypothetical?

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              • #22
                Originally posted by jacoavlu View Post
                Have you already done 2021 backdoor Roth? Or is this hypothetical?
                Hypothetical

                Comment


                • #23
                  Originally posted by TeachMeThings View Post

                  I think my 2020 forms and 2021 forms will look quite different...

                  2020:
                  1: 6000
                  2: 0
                  3: 6000
                  4: 6000
                  5-13: 0
                  14: 6000
                  Didn't do a conversion in 2020 so skip Part II
                  Didn't have a distributions so skip Part III
                  did you make the contribution for 2020 in 2021? Again pretend as if you did it right and contributed to the tIRA not the Roth. If contributution was in 2020 line 4 is zero

                  Inconsequential bc taxable is zero and basis is $6k either way

                  Comment


                  • #24
                    Originally posted by TeachMeThings View Post

                    2021:
                    1: 6000
                    2: 6000
                    3: 12000
                    4: 0
                    5: 12000
                    6: 0
                    7: 0
                    8: 12,885 (6,885+6,000)
                    9: 12,885
                    10: 0.931
                    11: $11,996
                    12: 0
                    13: 11,996
                    14: 4
                    15a-c: 0
                    Part II:
                    16: 12,885
                    17: 11,996
                    18: 889
                    Didn't have a distribution so skip Part III
                    this is the part where if I was really an asshole I'd point out that taxable amount of $889 and a $4 basis left in your empty tIRA doesn't make sense, right? And of course we don't want to pay tax on $4 more than we should have to.

                    so I'll give you a hint: be careful at line 10

                    Comment


                    • #25
                      Originally posted by jacoavlu View Post

                      did you make the contribution for 2020 in 2021? Again pretend as if you did it right and contributed to the tIRA not the Roth. If contributution was in 2020 line 4 is zero

                      Inconsequential bc taxable is zero and basis is $6k either way
                      All of the contributions were made in 2020. Line four being zero for 2020 makes sense.

                      Comment


                      • #26
                        Originally posted by jacoavlu View Post

                        this is the part where if I was really an asshole I'd point out that taxable amount of $889 and a $4 basis left in your empty tIRA doesn't make sense, right? And of course we don't want to pay tax on $4 more than we should have to.

                        so I'll give you a hint: be careful at line 10
                        I agree it doesn't make sense. I want to have $12,000 in contributions, pay tax on $885, and 6k in basis. Following the instructions of the worksheet I don't see how to get there.

                        Line 8: "Enter the net amount you converted from traditional to rIRA in 2021." I converted 12,885 in 2021 (6,885 for the 2020 tax year and 6,000 for the 2021 tax year). This makes Line 9 = 12,885.

                        Line 10: Line 5 (12k) / Line 9 (12,885) = 0.931

                        Comment


                        • #27
                          Originally posted by TeachMeThings View Post

                          I agree it doesn't make sense. I want to have $12,000 in contributions, pay tax on $885, and 6k in basis. Following the instructions of the worksheet I don't see how to get there.

                          Line 8: "Enter the net amount you converted from traditional to rIRA in 2021." I converted 12,885 in 2021 (6,885 for the 2020 tax year and 6,000 for the 2021 tax year). This makes Line 9 = 12,885.

                          Line 10: Line 5 (12k) / Line 9 (12,885) = 0.931
                          Line 10 key words “at least”

                          Comment


                          • #28
                            Originally posted by TeachMeThings View Post

                            I agree it doesn't make sense. I want to have $12,000 in contributions, pay tax on $885, and 6k in basis. Following the instructions of the worksheet I don't see how to get there.

                            Line 8: "Enter the net amount you converted from traditional to rIRA in 2021." I converted 12,885 in 2021 (6,885 for the 2020 tax year and 6,000 for the 2021 tax year). This makes Line 9 = 12,885.

                            Line 10: Line 5 (12k) / Line 9 (12,885) = 0.931
                            aka jacoavlu is saying while 0.931 leaves you at 11,996 or a $4 difference, 0.9313 gets you to 11,999.8 or the full 12K.

                            Comment


                            • #29
                              Originally posted by Peds View Post

                              aka jacoavlu is saying while 0.931 leaves you at 11,996 or a $4 difference, 0.9313 gets you to 11,999.8 or the full 12K.
                              OHHHHH. Well that's slightly infuriating.

                              2021 Form 8606:
                              1: 6000
                              2: 6000
                              3: 12000
                              4: 0
                              5: 12000
                              6: 0
                              7: 0
                              8: 12,885
                              9: 12,885
                              10: 0.93131
                              11: 12,000
                              12: 0
                              13: 12,000
                              14: 0
                              15a-c: 0
                              Part II:
                              16: 12,885
                              17: 12,000
                              18: 885
                              Didn't have a distribution so skip Part III

                              Comment


                              • #30
                                Thank you for helping me work through the form. Your patience was truly appreciated.

                                Comment

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