@jdfkin wrote:
I posted this reply a few minutes ago:
The $6000 funds contributed to the IRA were non deductible due to high income. The $6000 contributions made were after tax dollars. The funds were then converted to a Roth (backdoor Roth process) so a 1099-R was generated for that distribution with a distribution code 2 (early distribution with exception). Line one on the 1099-R was $6000 for gross distribution and line 2 was $6000 taxable amount. Taxable amount not determined box was checked. Seems like I could file form 8606 and have the distribution become non taxable since I was using after tax dollars for the contribution and the fact they were non deductible. Do you agree or is there something else I need to know to make the determination about whether the distribution s taxable or not? All of the transactions occurred in calendar year 2021.
Also, there is a 401K that I have maxed out at work. Does that make a difference and is anything reportable if I fill out the 8606 on that 401K?
You didn't answer my question. Did you or do you have any other IRA funds that were deductible? Even from previous years.
If you had no other non-deductible IRA funds, then what you did is not taxable as long as you enter it in the program correctly. Your 401(k) contributions don't have any effect on the process.
But if you do have deductible IRA funds, even from a previous year and even in a different account, then you can't do a tax-free conversion. You can't only convert the $6000 from 2021. You have to combine all your IRA balances when calculating the tax effect of the conversion. To give a basic example: Suppose your previous deductible IRAs total $50,000. Then you made a $6000 non-deductible contribution. You now have combined IRA balance of $56,000 of which 10.7% is non-deductible. If you do a $6000 Roth conversion, only 10.7% will be non-taxable, and the other 89.3% will be taxable. And you will end up with the $50,000 balance in your traditional IRA being partly non-deductible.
So it really is critical to know if you have any other pre-tax (deductible) IRAs, even from prior years.
