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form 8606 rollover and conversion question

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  • form 8606 rollover and conversion question

    This is the first year that I am doing a back door Roth conversion. I had 10k in a traditional Ira that my advisor told me to convert to a Roth IRA to avoid the pro rata rule, so I did. I then contributed 6000 to a non deductible traditional IRA for 2020. Of that 6000, 5000 was contributed in 2021. All of the 6000 was then converted to Roth in 2021. We had 1000 in nondeductible Ira as of December 31 but my advisor said that as long as we didn’t have tax deferred money, we would avoid the pro rata rule. My accountant has filled out the 8606 form but he almost seemed unsure and I just wanted to get some advice.

    from all that I was reading, it seemed as if line 6 should be $0 to avoid the pro rata rule but in my case it is $1000?

    Line 13- this makes my non taxable portion $910
    Line 14- my total basis for 2020 $5090
    Line 18- taxable amount $9090
    Last edited by jfoxcpacfp; 05-06-2021, 11:34 PM.

  • #2
    Unlike others, I’m not one of those on this forum who seems to have memorized the line #’s of form 8606 so I’m not going to address what goes where for you and your accountant. If you had no pre-tax balance in an IRA on 12/31/XX of the calendar year in which you do a backdoor Roth conversion. According to the facts provided, you had $0 balance in calendar year XX and you made a BD Roth conversion in calendar year XX+1. Sounds good to me.

    Respectfully, you need a new accountant if you are going to continue to follow WCI principles. Doesn’t make yours inept or even a bad accountant for doctors, just out of his/her depth when it comes to the type of work upon which you need to be advised. It continues to amaze me how many professionals demonstrate lack of knowledge in front of their clients rather than just clearing up the matter on their own time and then presenting the solution to the client. I mean, seriously, would you tell a pt you’re not sure how to correct a tooth issue you’ve never dealt with before, leading them to do the research online and present you with an answer to implement? I don’t think I would be paying that toothmover - I’d just move on to one who had more experience in that area.

    PS - the edit I made to your post was to change the header typo from “wuestion” to “question”. Forgot to put the reason and the forum s/w will not allow us to return and correct the oversight.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Originally posted by Toothmover View Post
      This is the first year that I am doing a back door Roth conversion. I had 10k in a traditional Ira that my advisor told me to convert to a Roth IRA to avoid the pro rata rule, so I did. I then contributed 6000 to a non deductible traditional IRA for 2020. Of that 6000, 5000 was contributed in 2021. All of the 6000 was then converted to Roth in 2021. We had 1000 in nondeductible Ira as of December 31 but my advisor said that as long as we didn’t have tax deferred money, we would avoid the pro rata rule. My accountant has filled out the 8606 form but he almost seemed unsure and I just wanted to get some advice.

      from all that I was reading, it seemed as if line 6 should be $0 to avoid the pro rata rule but in my case it is $1000?

      Line 13- this makes my non taxable portion $910
      Line 14- my total basis for 2020 $5090
      Line 18- taxable amount $9090
      Can you take us through a month/year accounting of what exactly you did? Balances, times of conversions/contributions?

      It sounds like you converted 10k in 2020 but then also made a nondeductible TIRA contribution, making a 12/31/20 balance of $1000. The $5000 contributed for 2020 in 2021 will go on the 8606 but won’t affect the pro rata calculation. The IRS will look at your 2020 calendar year as follows:

      He had $11,000 in a TIRA, $1,000 of which had basis. He converted $10k of the $11k, leaving behind $1k, some of which has basis. So yes the pro rata rule would apply to the $10k. You will also owe taxes on the converted amount of the $1k without basis for your 2021 tax year when you convert that (plus the other $5k) to the Roth. This is all assuming I read the situation correctly.

      So then:

      Line 1: $6k
      Line 2: $0
      Line 3: $6k
      Line 4: $5k
      Line 5: $1k
      Line 6: $1k
      Line 7: $0
      Line 8: $10k
      Line 9: $11k
      Line 10: 0.091
      Line 11: $910
      Line 12: $0
      Line 13: $910
      Line 14: $5,090 —> goes to line 2 of your 2021 8606
      Line 16: $10k
      Line 17: $910
      Line 18: $9,090 —-> goes on line 4b of the 1040

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