@vikasahuja wrote:
I got Form 5498 at end of the year along with 1099 R. So, what i have learnt so far, even though IRA service providers like Fidelity allow you to contribute to non-deductible IRA for past year uptil April 15, you will have tax incidence. To get tax fee conversion to Roth, one must have $0 balance at the end of the year for IRA. Is that true?
What is a basis? Having basis from past year reduces one's tax in following year? I couldn't find non-confusing definition of it.
If the 5498 was a 2020 5498 that reports the 2019 year end balance than that would be unusual since 5498 forms are not normally issued until may.
Basis is the after-tax nondeductible contribution.
Yes. to make a conversion tax free, the 2019 year end value must be zero. but in yiu cased is is not for two reasons.
1) You did not make the conversions until Jan 2020 so that can only be reported next year on your 2020 tax return.
2) Yes, you have until April 15, 2020 to make a 2019 contribution, but that does not bean that then non-deductible basis can be applied retroactively - it cannot. It is specifically excluded for any 2019 conversions on the 8606 form line 4. It will be applies to 2020 conversions since it was contributed *in* 2020 even if it was *for* 2019.
**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.**
