Sorry I wasn't clear. I'll try again, as this seems to be a rare situation. Even tax professionals and my broker aren't clear on it. It's simple, but requires specific detail.
Context: MFS is the filing Status, and the same IRA account is source and destination for both contributions and distribution.
- $6k is the contribution. Regular deposits, all year long, all 2019.
- For the sake of the math, $15k was the distribution amount, early 2019.
- MFS triggers the $10,000 income limitation on the $6,000 contribution, so it is correctly "not deductible".
New to me:
- $6k ends up on Line 1 of 8606. This seems logical.
- No previous non-deductible amounts, so 8606 Line 2 is -0-.
- Line 13 is $6k, with an asterisk, referencing IRS Pub 590-B
- Line 14 is -0-
- Line 15a, and 15c are $9k, which passes to "Form 1040 or 1040-SR, line 4b; or 2019 Form 1040-NR, line 16b"
- 15c also has an asterisk, referencing IRS Pub 590-B
The netting of amounts I referred to previously is +$15,000 - $6,000=$9,000. This calculation is not really documented anywhere with a smart worksheet, or a working model of the referenced IRS 590-B worksheet, it just shows up on 15a, with that asterisk(*).
The effect of this on the tax return makes the $6,000 a "functional" deduction adjustment to AGI. In this particular situation (apparently rare), none of my contacts has seen this calculation, and it does look odd.
Although ruled non-deductible under the MFS/$10k limit (which is absurd and bizarre):
- because the distribution and contribution all occur in 2019
- and the referenced IRS 590-B worksheet
- the total $15k distribution is REDUCED by the $6k contribution
- to create the taxable amount of the distribution of $9k.
The contribution ends up "deductible", but in a back door kind of way.
Usually, the IRS is not generous. Any detail or confirmation will bolster my case with my contacts. A couple of alternative sites were inconclusive, and my tax professional has not yet run this scenario and returned my call.
My broker thinks TurboTax is wrong. Since TurboTax backs it's calculations with a guarantee, I'm inclined to proceed.
