My siblings and I inherited a traditional IRA account from our deceased brother. He funded the IRA with after-tax money in 2008. Unfortunately, the executor shredded all but the last 3 years of my brother's tax returns, so we do not have any forms 8606 to demonstrate the basis in the IRA account.
The money was originally in an employer savings plan (traditional 401-k) and was moved to a traditional IRA account with an investment company. If we are able to obtain documentation from the custodians (his employer and the investment company) that show that the account was funded entirely with after-tax money, and that he took no distributions in his lifetime, will that demonstrate the basis to the satisfaction of the IRS? Or, must you have the forms 8606 no ifs, ands, or buts?
Only the employer plan will have information regarding the amount of after-tax basis that was rolled over to the traditional IRA. The IRA custodian has no way to know anything about his basis.
Although it was possible for him to have rolled the after-tax basis from the 401(k) to a Roth IRA and roll over the pre-tax funds to a traditional IRA, you haven't mentioned that he had done so, so it does seem that the basis was rolled over to the traditional IRA. It's possible that he filed no Form 8606 reporting this basis because the basis acquired from the 401(k) is reported on line 2 of Form 8606 as an adjustment of basis when there is some reason to file Part I of Form 8606 for a nondeductible traditional IRA contribution or a distribution from a traditional IRA in or after the year that the rollover fro the 401(k) was done. There would have been a Form 1099-R for the distribution from the 401(k) which should have shown in box 5 the after-tax basis that was distributed from the 401(k), which might be the only place that the basis has been recorded.
Thank you very much for your reply to my post.
The Employee Savings Plan my brother participated in was administered by a 3rd party - an investment company contracted to administer the plan. The Savings Plan was traditional (a non-Roth 401-k), and the IRA account he opened at another investment company was a traditional IRA. There wasn't a Roth account involved. He decided to take some money out of the Employee Savings Plan, and so he opened a traditional IRA account and did the rollover. The only money placed in this IRA account was the money that came from this rollover.
If I understood you correctly, if there was only one transaction into or our of the IRA account (that one transaction being that one-time rollover), there would never have been an 8606, and the only record of the after-tax basis would have been the 1099-R generated in the year that the rollover occurred. Did I understand that correctly?
"show that the account was funded"
By "account" in your original post, I take it to mean the IRA account.
In the absence of Form 8606, IRS will accept other suitable evidence to support your position.
Otherwise, the IRS can declare the entire basis to be zero.
they may or may not do this depending on their audit resourses when you file your return(s). and what mood they're in.
In other words, hold on to your evidence in case your "prior years basis in inherited IRAs" is disallowed.
Note: as you should know, inherited IRAs must be treated separately from your own IRAs.
If your patron was fastidious, IRS requires all Forms 8606 to be kept forever, which implies there is a copy or copies outside the folder of copies of past taxk returns that do not have to be kept forever.
"if there was only one transaction into or our of the IRA account (that one transaction being that one-time rollover), there would never have been an 8606, and the only record of the after-tax basis would have been the 1099-R generated in the year that the rollover occurred."
Following the instructions on Form 8606, yes, that would generally be the case. However, sometimes someone will file Form 8606 to only record the adjustment to basis even though the instructions for the form do not say to do this.
However, basis in traditional IRAs belongs to the individual, not to any particular traditional IRA account. If your brother had other traditional IRAs from which distributions were taken in or after the year of the rollover, some basis was distributed. All of an individual's traditional IRAs are treated as one combined IRA for the purpose of applying basis to distributions.
Likely the best (and possibly only) place to find out how much after-tax basis was distributed from the 401(k) would probably be the 3rd party investment company that administered the employer's 401(k) plan. The IRS would have also received a copy of this Form 1099-R, but Wage & Income transcripts that would include the details from this form are likely only available from the IRS for 10 years. The IRS suggests contacting the payer first. See Form 4506-T:
Yes, the inherited IRA is in a separate account, and I am aware that the rules are different for the inherited IRA.
Thank you.
Yes, my dear brother was fastidious by nature and from his work experience but the documents needed weren't retained by the executor. I am gathering documents to use in lieu of completed forms 8606. Fingers crossed.