Retirement tax questions


@gfc0826 wrote:

Does this mean when I rolled my 401K retirement plan money into an IRA at the end of 2018, I now have to include the 401K pre-tax rollover amount on line 6 of form 8606 as "Traditional IRA" money?  This will increase the amount of deductible IRA money I have in my total since my entire 401K money was pre-tax. I have other IRA money with another provider which is about 50% non-deductible.  When I do a Roth conversion from my other IRA provider, the % of the conversion which is taxable will increase since I now have more traditional IRA in the total.  When it was in the 401K, I did not have to include on line 6 of Form 8606.  This does not seem fair. Any way to get around it? Can you file two form 8606, one for the 401K conversion and the other for my other IRA's? Will the IRS pick up on it, if I keep the money separate?


#1) Yes, *Any* money in *any* Traditional, SEP or SIMPLE IRA must be included on line 6 on the 8606 form.

 

#2) A Roth conversion (so called "Back door" Roth) *only* works if you start with a zero value on all IRA accounts and end with a zero value.   Otherwise the non-deductible "basis" must be pro-rated over the Roth conversion and the total year end market value of all IRA accounts which can make most of the Roth conversion  taxable.

 

#3) Not, there is no way around this.

 

#4) Fair or unfair the "backdoor Roth" was never intended to be a method of contributing to a Roth IRA when direst contributions cannot be made, but many taxpayers have found that "loophole" that Congress has not closed and outlawed, but there can be pitfalls if not done properly.

 

#5) No, IRA money cannot be "separated".   For tax purposes you only have one Traditional IRA that can be split into as many accounts as you want. but for tax purposes (and line 6 on the 8606) is the aggregate total of ALL Traditional, SEP and SIMPLE IRA accounts combined.  You can only file one 8606 per taxpayer.

 

#6 Will the IRS catch it?   Probably in about two years when the 1099-R's and 5894 back statements are matched with what was reported on your tax return.    Interest and late penalties start from the due date of the tax return.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**