Amending IRAs for both Traditional IRA and Rollover IRA

[4440864]

Due to my ignorance about IRAs and Form 8606 I didn't file Form 8606 at all for 2017, 18, and 19 when I contributed to nondeductible traditional IRA. So, I'm filing form 8606 for 2017, 18, and 19 to amend. I understand that I have to pay penalty which is ok. However, the situation is a bit more complicated because in 2018 I rolled over my 401k(s) to Rollover IRA. 

2017

I only contributed nondeductible IRA for $5,500. So, I think this is simple I just have to do

Line 1 = 5500

Line 2 = 0

Line 3 = 5500

Line 14 = 5500

2018

This year I'm not sure what to do with Line 2 and Line 6. This year I contributed only $4,575 but as I mentioned above this year I rolled over my 401k (From two employers) to a Rollover IRA for a total of $17,339.56 (I took the number from form 5498 Box 2). Given what I know so far this is what I think I should do but I could be completely wrong.

Line 1 = 4575

Line 2 = I'm not sure what to put here. I thought it would just be 5500 which is from 2017?

Line 3 = 10075. Now the instruction here is saying that I should move on to Line 14 if I didn't take a distribution from traditional, SEP, or SIMPLE IRAs, or make a Roth IRA Conversion. The instruction also says that I shouldn't complete the rest of Part I?

Line 6 = 17339.56. Do I need to enter my rollover number here?

What else do I need to do for 2018.

2019

I think this year depends on 2018. But I only did $1,450 for nondeductible contribution. So I think Line 1 would just be 1450 but what should I do with Line 2 and the rest?

[macuser_22 · Accepted solution]

Line 2 = 5500.

A 401(k) rollover does not get entered on 8606 at all unless you had a non-deducible basis in the 401(k).   That is usually reported with a separate 1099-R for the 401(k) rollover but could all be on one 1099-R and would be in box 5.  Then you could add that amount to line 1 on the 8606 for the year of the 401(k) rollover.

[4440864]

Thanks for the reply. Then I think my 8606 will be simple to just add up all of the contributions I made from 2018, 18, and 19? Since I haven't done and Roth Conversion yet. 

Now that you mentioned about 1099-R. In 2020, I started doing 401K In-plan Roth Conversion which as you said I see that in Box 5 I have the after-tax money I contributed. Do I need to report 8606 for 2020 as well? This is still in my 401k plan.

[macuser_22]

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@4440864 wrote:

Thanks for the reply. Then I think my 8606 will be simple to just add up all of the contributions I made from 2018, 18, and 19? Since I haven't done and Roth Conversion yet. 

Now that you mentioned about 1099-R. In 2020, I started doing 401K In-plan Roth Conversion which as you said I see that in Box 5 I have the after-tax money I contributed. Do I need to report 8606 for 2020 as well? This is still in my 401k plan.

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No.    The 8606 only applies to the basis that is in a Traditional IRA.  Nothing in your 401(k) or Designated Roth goes on a 8606.

I assume that you already know, but I will point it out anyway, that the IRA basis applies to aggregate  total of all Traditional, SEP and SIMPLE IRA accounts that you might have so when you take a distribution from any of those, the non-taxable basis must be pro-rated between the distribution and total aggregate IRA value.

Therefor, if your 401(k) rollover IRA is a large amount then non-taxable amount of a small distribution will also be small and most will be taxable.

[4440864]

Thanks for your answer. I think that's called pro-rata rule? And yes that's the next topic that I need to tackle and think about what to do. 

[macuser_22]

Correct.

You can NEVER withdraw ONLY the nondeductible part - it must be prorated over the entire value of ALL Traditional IRA accounts which include SEP and SIMPLE IRA's. (For tax purposes you only have ONE Traditional IRA which can be split between as many different accounts as you want, but for tax purposes they are all added together).

For example using rough figures: if you had $60K of nondeductible contributions in an IRA with a total value of $600K (10:1 ratio), then when you take a $60K distribution from any IRA account $6,000 would be nontaxable and $54,000 would be taxable (same 10:1 ratio) , with the remaining $54K of basis staying in the IRA for future distributions. As long as there is any money in the IRA, there will be some basis.

TurboTax will ask for your non-deductible "basis" and then the *Total Value* of *all* Traditional IRA, SEP and SIMPLE accounts as of Dec 31, of the tax year. That is so the prorating of the basis can be properly proportioned between the current years distribution and the remaining IRA value. That is done on the 8606 form.

[Gleam55]

How can you force TT to generate a Form 8606 if it doesn't do so automatically?

[macuser_22]

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@Gleam55 wrote:

How can you force TT to generate a Form 8606 if it doesn't do so automatically?

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Why do you think you need a 8606 if it is not automatic?

You don't normally enter a 8606 itself. It is automatically created when:

1) You make a new non-deductible Traditional IRA contribution.
2) You take a distribution from a IRA that has a after-tax "basis".
3) You make a conversion of a retirement account to a Roth IRA
4) You have distribution from Roth IRA.


[For more information:
See IRS 8606 instructions
https://www.irs.gov/pub/irs-pdf/i8606.pdf
"Who must file" page 1.]

If none of those occurred, then the last filed 8606 remains in effect

There are some circumstances when a 8606 must be files for other reasons and might require filing a stand-alone 8606.

[Gleam55]

I made my last IRA contribution in 2017.  TT stopped generating an 8606 for 2018 to present.  I made Roth Conversion withdrawals in 2019, 2020 and 2021.  Now my taxes sky rocket when i go through the retirement account section.  Do i need to go back to 2018 and submit new 8606's by hand for each year?

Just 1 of many problems i have with TT with this section.

[macuser_22]

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@Gleam55 wrote:

I made my last IRA contribution in 2017.  TT stopped generating an 8606 for 2018 to present.  I made Roth Conversion withdrawals in 2019, 2020 and 2021.  Now my taxes sky rocket when i go through the retirement account section.  Do i need to go back to 2018 and submit new 8606's by hand for each year?

Just 1 of many problems i have with TT with this section.

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You don't normally enter a 8606 itself. It is automatically created when:

1) You make a new non-deductible Traditional IRA contribution.
2) You take a distribution from a IRA that has a after-tax "basis".
3) You make a conversion of a retirement account to a Roth IRA
4) You have distribution from Roth IRA.

If none of the above then the last filed 8606 remains in effect no matter how old it is.

For the 2021 conversion, you need to enter the laat filed 8606 (2017) line 14 amount when asked for the prior years non-deductible basis.

[Gleam55]

Thank you.  Very helpful.  Next quandary.

My wife had a company pension plan.  This was different than her 401(k).  When she retired those pension proceeds were moved to 2 Traditional IRAs (in 2014 & 2015) and were the only funds in those IRAs.  Rollover IRAs i guess.  Form 8606 says include those rollover IRA values in line 6 when determining end of year value.  In 2021 she took a distribution from one of these IRAs.  8606 Line 7 says do not include rollover IRAs in the distribution calculation.  How is that accounted for?  It will reduce the next year's basis and possibly the value if not accounted for somewhere.  

[fanfare]

It says outstanding rollovers.

That means rollovers that were in transit on Dec 31 2021.

[Gleam55]

Line 6 says "outstanding" but not line 7.

[macuser_22]

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@Gleam55 wrote:

Line 6 says "outstanding" but not line 7.

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Line 7 says to enter *IRA* distributions.  If there was IRA distribution and it was rolled over then do not include it.  That is what it means.   Has nothing to do with a pension rollover to an IRA that increases the value of the IRA.

[Gleam55]

Thanks.  I'm slowly starting to get it.