@chrisjsutton wrote:
@macuser_22 Hi thanks for the quick response back. Just to confirm, because I made the contribution in 2020 I am being penalized? I was under the assumption that you could make a non-deductible contribution until April 15th. As it stands right now it looks like I am paying tax twice, once at the time of earning, and now at tax time with a decrease in my refund.
Did you do the conversion in 2019 or 2020? I am assuming 2019 using funds already in the IRA since you seem to be reporting it on your 2019 tax return.
Do you have a 2019 1099-R reporting it? If not then this does not apply and yiu report it next year on a 2020 that return with a 2020 1099-R.
Yes, you have until April 15, 2020 to make a 2019 contribution. However, if it is a non-deductible contribution, the basis is not retroactive to distributions that occurred before the contributions was made. The tax law specifically prevents that.
There is no penalty involved, just the normal tax on a conversion.
That basis remains in the account to be used for future contributions and distributions. (There is some disagreement on that as some believe that if the IRA value becomes zero then any reaming basis not used is forfeited. Before the tax law changed that unrecovered basis could be an itemized deduction, but the TCJA made it non-deductible. I am in the camp that believes that once a 8606 form reporting basis is filed then that basis remains in the IRA forever until used.)
**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.**
