dmertz
Level 15

Retirement tax questions

This information about how the basis came to be in your traditional IRAs changes nothing in my previous reply.  When the after-tax funds from the 401(k) were rolled over to the traditional IRA, they became basis in nondeductible traditional IRA contribution.  The tax code (§ 72(b)) stipulates that distributions from a traditional IRA when you have basis in nondeductible traditional IRA contributions are a proportional combination of nontaxable basis and taxable amounts.  Had you reported these distributions properly in 2015 through 2017, you would not be paying taxes twice on the basis portion of each distribution.  Failing to report the nontaxable portion correctly does not change the fact that the basis was distributed, it just means that you filed incorrect tax returns for 2015 through 2017 that cannot now be corrected to receive a refund because the deadlines to do so have passed.  You are not permitted to apply the basis in later years because it was already actually distributed in 2015 through 2017 despite your inaccurate tax returns.  It's similar to failing to claim a deduction to which you were entitled; you can't simply report that missed deduction as a deduction in some future year.

 

Even though you can no longer claim refunds for 2015 through 2017, you should generally file the reconstructed 2015 through 2017 Forms 8606 to establish the basis that carried into 2018 and then claim refunds for 2018 through 2020 by amending those tax returns.  (The deadline to amend your 2018 tax return to claim a refund is about a month away.)  This will also establish the amount of basis that remains to be included on your 2021 Form 8606 line 2.

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