Man I suck at taxes! Question about filing late 8606 ...

[x46359]

Ok, so, I have a bit of a complex question on filing late 8606's. 

Some quick background. Back in 2018 and part of 2019, I contributed to a ROTH and didn't realize I was above the income limit. In 2019 (after filing my 2018 taxes on time), I realized this and recharacterized both 2018 and 2019 contributions (then continued contribution to the TIRA for the remainder of 2019). I amended my 2018 return to include form 8606 (there was no electronic filing so had to mail in the amended return).  Then, like a true idiot, when I filed my 2019 taxes, I didn't include form 8606. Finally, the pièce de résistance -- with the most recent 2023 filing, I did include form 8606 but only the contribution for that year and not a rolling basis of all prior years. Don't ask me why or how this happened -- I'm just that awesome. So to recap:

2018 - filed 8606 with $5.5K basis, no deductions taken (recharacterized ROTH to TIRA via amended return)

2019 - no 8606 with $6K basis, no deductions taken (recharacterized but for same year contribution before filing taxes)

2020 - no 8606 with $6K basis, no deductions taken

2021 - no 8606 with $6K basis, no deductions taken

2022 - no 8606 with $6.5K basis, no deductions taken

2023 - filed 8606 with $6.5K basis, no deductions taken (not rolling)

Here are my questions:

1. Can I just update the rolling basis when I file my 2024 taxes? Or do I need to file form 8606 (using the one from the respective filing years) for 2019 - 2022?

2. If I need to file each individual year, do I need to re-file form 8606 for the 2023 tax year to reflect the correct rolling basis?

3. Any suggestions on how I can wordsmith my lack of knowledge as reasonable cause? 

How awesome am I? This sent me down another rabbit hole of the benefits of a TIRA and now understand there isn't one unless you do a backdoor ROTH. But, oh the tax implications ... why didn't I just do it sooner ... this is going to be my next question 🙂

Thanks in advance for your help!

[tagteam]

I'll page @dmertz 

Please check back.

[fanfare]

Wage earners  contribute to Trad IRA all the time with no consideration for Roth. It is a tax-deferred account.

Since your contributions were not deducted, you can convert it all to a Roth IRA at no tax.

Only any earnings on your contributed money would be taxed in that scenario.

You have to get your Form 8606 issue resolved first.

@x46359 

[dmertz · Accepted solution]

1 and 2.  No, you are not permitted to simply update your basis when filing your 2024 tax return.  Filing Forms 8606 to report nondeductible traditional IRA contributions made for the year are essentially required by law.  You must file the particular year's Form 8606 for any year for which you made a nondeductible traditional IRA contribution.  It's not clear whether you made any such contributions for 2020 through 2022.  If not, you just need to file the 2019 Form 8606 (along with Form 1040-X) and a corrected  2023 Form 8606 (along with Form 1040-X).  The Forms 1040-X will only show that there were no other changes to your filed tax returns and to provide a place for your explanation that you are filing the missing or corrected Form 8606.

[fanfare]

Oonly Form 8606 has to be attached.
After you e-File,
get Form 1040-X from IRS website and mail it in with your <tax year> 8606, which you can also get in fillable PDF.
Note: when you are not changing any dollar amounts on your amending 1040-X, you can leave all the lines 1-23 EMPTY.

@x46359 

[x46359]

Thanks for the comprehensive responses. Realized I didn't make it clear if I contributed 2020 - 2022 ... I did contribute the max allowed amount for each of those years. So my cumulative rolling basis should be $30.5K. So looks like I need to file both Form 1040-X and Form 8606 for 2020 - 2022 and Form 1040-X and corrected Form 8606 for 2023.

1. @dmertz, do you know if these can be filed electronically for each year or would I have to mail these in? 

2.  @fanfare, looking at 1040-X, makes sense leaving 1 - 23 blank as well as Part 1, 24 - 30. In part II, I'm assuming I'll need to explain the missing Form 8606 as the reason for filing 1040-X. Any recommendations on language so I have a chance at reasonable cause?

[x46359]

This is the separate questions that I'm going to ask. 

As far as my limited research and understanding tells me, since I'm over the income limit for TIRA deductions, the two better options would've been to (1) backdoor ROTH as soon as the yearly contributions settled so the gains/withdrawls are tax free or (2) traditional brokerage account so gains are taxed at capital gains rate vs. ordinary income. 

I'd still like to move money into my ROTH via the backdoor but now understand either I need to zero-out the current TIRA balance (pay ordinary income tax on a decent amount of gains) or pay taxes according to the pro-rata formula. The other option I read was to roll the current TIRA into my 401K (if the plan allows it). Some of the things I wish I knew 6 years ago ...

[fanfare]

Part III explanation: "didn't include Form 8606 with original filing. See attached"

"This is one of several years amendments [ enter list of years here ] to correct the prior years basis Line 14".

I haven't seen on the forum anyone say the IRS imposed the $50 fine for a missing Form 8606.

You need to put each amendment into its own mailing.

Make sure each form is correct and consistent with the previous one.

@x46359 

[fanfare]

Generally, once you have deductible contributions and/or earnings on top of your non-deductible contributions, it is not possible to do a completely tax-free Roth IRA contribution via conversion.

That' not necessarily a reason to give up.

@x46359