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Nondeductible IRA -> TSP mess w/ deductible and nondeductible money

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  • Dr. Mom
    replied
    When I split my t-IRA this year, I went over it with our accountant first to be sure I understood.  The non-deductible basis that had been followed on Form 8606 went to the Roth-IRA.  That action will generate a 1099-R.  The deductible part that rolled into my solo-401k will generate a 1099-G.  I was told by Schwab, Bogleheads, and my accountant that we should attach the 1099-G with a letter explaining what we did when we file our taxes even though it creates no tax liability.  In your case, it is not clear to me what will get generated from everything that happened this year and how best to explain it.  Let us know what happens and how it gets reported on taxes.  I am sure you are not the first person to get this mixed up.

    Leave a comment:


  • gap55u
    replied
    Of course, re: 1099-R's, 5498,  vs 8606.  Thanks for reminding me.

    I think getting a CPA for this year is important as Dr Mom suggests.  I'd probably screw this one up with Turbotax, based on mistakes made on this thread.

     

     

    Leave a comment:


  • DMFA
    replied
    What? You don't receive form 8606 from anyone, you file it yourself. The only thing that goes on it is the total sum for the year in each box. The recharacterization will probably be reflected on your form 1099-R (considered a distribution, but should not be taxable) and on form 5498, which you still should only receive one each per account.

    Obv the CPAs on here can correct me if I'm wrong. I've never personally had to recharacterize.

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  • Dr. Mom
    replied
    Stop listening to the old financial planner. Roll the nondeductible basis to the Roth this year to get this mess cleared up.  Better to have it effect one tax year. I’d use a CPA for sure this year to do your taxes. Have them enclose a letter explaining all this. Then you’ll have someone to deal with the inevitable IRS letter that will come asking for clarification. The only way I’d drag it into another tax year is if spiritrider comes along and tells you differently. S/he was very helpful when I split my t-IRA into a solo401k and a Roth-IRA. Good luck. Thanks for posting about this issue so others won’t make the same mistake!

    Leave a comment:


  • Faithful Steward
    replied


    You need to fire your financial planner, they are an idiot and are certainly not properly fulfilling their roll.
    Click to expand...


    Absolutely! The lack of professionalism by some in my profession never ceases to amaze me.

    Leave a comment:


  • gap55u
    replied
    So... the nondeductible money is back in my nondeductible IRA account.  And any earnings from that are now at the TSP.

    Come tax time, should I expect an 8606 for Traditional IRA - >TSP, and a 8606 for TSP -> traditional IRA?

     

    The financial planner (we parted ways)  suggested not doing the nondeductible traditional IRA -> roth IRA rollover this tax year -- he thought it could be some kind of flag for audit as it would be yet another 8606.

    Thoughts?

    My wife's nondeductible IRA is still not in a backdoor roth, as I haven't convinced her to start a soloK and transfer her traditional IRA money there. so it's not like we'll have one extra form from her.

     

     

    Leave a comment:


  • spiritrider
    replied




    The folks at TSP have clearly never heard of a nondeductible Traditional IRA.

    Next question: I presume I can’t move nondeductible Traditional IRA money to a 401K, same issue. But I could move earnings over.


    Don't go blaming the TSP for you, your advisor's and the trustee or custodian of the IRA for failing to properly follow the TSP's explicit instructions on the Form TSP-60 that you would have had to complete. Also, the advisor and the IRA custodian should just know these rules.

    You signed the following certification in Box 10.

    Certification—I certify to the best of my knowledge that the distribution I am transferring or rolling over into the TSP meets the requirements for a distribution from an IRA or an eligible employer plan (whichever is applicable) as described in the General Information section of this form. I further certify that I have read this form (and instructions) in its entirety and that the information I have provided is true and complete to the best of my knowledge. Warning: Any intentional false statement in this request or willful misrepresentation concerning it is a violation of law that is punishable by a fine or imprisonment for as long as 5 years, or both (18 U.S.C. § 1001).

    Your IRA custodian signed the following certification in Box 18.

    Certification—I certify that the funds are being (or have been) distributed from an eligible retirement plan as defined in IRC § 402(c)(8)(B) and as described in the General Information section of this form.

    FORM TSP-60 GENERAL Information

    The TSP will accept all or a portion of a distribution from a traditional IRA except a distribution that:

    • is a minimum distribution required by IRC § 401(a)(9); or

    • consists of after-tax balances (i.e., money that has already been subjected to Federal income tax).


     

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  • gap55u
    replied
    The folks at TSP have clearly never heard of a nondeductible Traditional IRA.

    Next question: I presume I can't move nondeductible Traditional IRA money to a 401K, same issue. But I could move earnings over.

     

    I have heard some of the pro/con of TSP once you're in withdrawal years. Is there a downside to letting it sit at that super low expense ratio until age 59, and then moving it to Traditional IRA?  I don't have a Roth TSP.

     

    Leave a comment:


  • spiritrider
    replied
    You need to fire your financial planner, they are an idiot and are certainly not properly fulfilling their roll.

    IRS regulations do not allow non-deductible traditional IRA contributions to be rolled into a qualified plan. You must not have informed the TSP of the characteristics of this IRA or they would never have allowed this. You need to contact the TSP now and remove the non-deductible amount and only the earnings since rolled in. The original earnings were OK, because they were pre-tax. The amount returned from the TSP should be converted to a Roth IRA. Whether the TSP can do this directly to a Roth IRA or must be returned to a traditional IRA and converted, I do not know.

    The proper steps should have been:

    1. Rollover the non-deductible contributions to a Roth IRA

    2. Rollover the non-deductible pre-tax earnings and any pre-tax contributions/earnings to the TSP.

    3. File Form 8606 to account for all of this.


    The order in which any non-deductible contribution for this tax year occurs does not matter. What really matters, is that there are no/minimal pre-tax (traditional, SEP, SIMPLE) IRA balances on 12/31.

    Leave a comment:


  • gap55u
    replied
    I thought I replied but don't see it...

    deductible Traditional IRA moved to traditional TSP.

    nondeductible Traditional IRA moved to traditional TSP including some earnings [Note, I don't have a ROTH TSP if that matters]

    Next, I did a backdoor roth with newly contributed nondeductible Traditional IRA money.

     

    My intent had been to convert & pay tax on the nondeductible + earnings into a Roth, making the backdoor Roth option clean for the future.  I didn't realize my advisor and I weren't on the same page and about a month has gone by.   My concern is that I had tracked basis in separate accounts of deductible and nondeductible. And now I can't do that.

     

     

     

    Leave a comment:


  • DMFA
    replied
    What got rolled into what? Deducted IRA into traditional TSP and non-deducted IRA into Roth TSP?

    Leave a comment:


  • Nondeductible IRA -> TSP mess w/ deductible and nondeductible money

    So I wanted to do a backdoor Roth IRA once I knew they existed.  I had been tracking nondeductible IRA's for 2 years.  I s/w my financial advisor and we discussed moving my existing traditional IRA back to TSP or 401K.  Interestingly, you can roll in and out of TSP, as long as it's partial.  A closed account == no more TSP for you.

    Unfortunately, they felt the best route was to roll the nondeductible IRA into the TSP as well as the deductible IRA. The tax consequences of converting was felt to be greater than benefit of converting.  I didn't find this out until after the fact.

    Now I'm left with a blend of deductible and nondeductible monies in my TSP.

    Does anyone know how this is treated come distribution time?

    He'd recommended consulting a CPA (I use turbotax) about tax implications as well as finding out if TSP could do a partial rollover back to nondeductible IRA.  After that, I'd be faced with converting to Roth to be able to do future backdoor Roth's.  I am pretty tempted to tell him to do the legwork as he made the assumption....

    In any case -- thoughts on how this might be handled by TSP/ current tax law?  I'm 46, so there's plenty of time for tax law to change.
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