IRA comedy of errors - 'pro rata' traditional IRA; mixed roth & traditional contributions in a year and dealt with excess incorrectly; reported roth contributions as NDT... years ago

[Tj137]

First I'll start with a narrative of how I discovered this and then describe the issue chronologically.

Narrative

This year, 2025, I realized that an account I thought was a traditional IRA was actually a Roth when I finally looked at a statement for the account (I had made the account nickname something like "traditional2"). I opened the IRA account in 2021 (when I already had a Traditional and Roth IRA accounts with money in them).  In 2022 I told Turbotax that the contribution I made to that account in 2021 was a non-deductible traditional contribution. This meant the 8606 that I filed that year is wrong. While digging into how to fix that and report the correct basis (I had prior basis from 2017) I realized I had also made mistakes in 2020.

In 2020, I contributed too much towards my 2019 IRA. In April 2020 I read about removing your contribution before the deadline and how that meant the contribution basically did not happen. But I did not realize the issues that arise from the fact that removal of excess 1) is done through a form through your broker 2) uses a last in first out rule for contributions 3) counts Roth contributions after traditional contributions for excess contributions. Not knowing all of that, I withdrew an amount equivalent to the excess from my traditional IRA without telling my broker.

Ok - feel free to use that as a test question if you're a tax professor.

Chronological - all IRA so I will shorten to Roth and traditional at times

2017 - ~800 of basis (non-deductible traditional) is contributed to a traditional IRA and reported on 8606

2019 - contributed ~1000 to Roth IRA, then 4500 to traditional for 2019 tax year

2020 - contributed another 1000 to Roth for 2019 tax year then panic researched and removed 500 from the  traditional before April 15 thinking I’ve fixed the problem of an excess contribution. I also thought the contribution didn’t ‘exist’ so it was not reported, I just reported a 4000 contribution as deductible for 2019 and didn’t report the withdrawal for 2020.

Note: even it was an allowed return of contribution, I removed too much since my NIA was negative for the contribution I was trying to remove. If it is an allowed return of contribution, I would treat the difference as an early withdrawal, right? Also, I contributed to 2020 Roth IRA within 60 days of withdrawing the 500 from traditional, but didn’t report it as a rollover. I have a 1099-R with 500 in box 1 (gross) and 2 (taxable), "taxable amount not determined" checked, and code 1 in box 7, Distribution Codes.

2021 - contributed 6000 to roth across two accounts but reported 1000 as non-deductible traditional (thinking 1 account was traditional)

2022-2024 contribute max Roth

2025 -  realize my errors

I’ve tried to distill the events to only the relevant information.

What I think I need to do:

1. Report the 500 non-deductible contribution I made in 2019 on an 8606, hopefully getting relief from further penalties on not filing 8606.
2. Amend 2020 to report the 500 tIRA withdrawal along with an 8606 for withdrawing basis and 5329 for early withdrawal penalty (excess contribution covered in point 3). Pay a 10% penalty tax and income taxes on the taxable portion, hopefully getting relief from further penalties on not filing 8606.
3. Amend/refile 2021 8606 and hopefully get relief from further penalties for overrepresenting my basis.
4. Pay excess contribution penalties (w 5329) of $30 (6% of 500) for 2019, 2020, 2021, 2022, 2023.
5. Withdraw $500 from Roth IRA now to end penalty - can I still do this in time for 2024 or can I only reduce my contribution for 2025 now (max minus 500)?

Am I right? Do I have any other options? My main goal is to correctly file my 2021 8606 because I put down that I had 0 prior basis and 1000 of new basis for the year. Both of which are wrong. I would love to not have to touch the issue from 2019/2020 but I think I have to.

Thanks in advance for reading through the post and helping.

[Tj137]

I keep going back and forth on being hopeful about this - that I'm wrong about being wrong.

For example, in the IRA contributions worksheet, line 6:

Line 6 - Contribution Withdrawn:

Enter the amount of any contribution that was withdrawn before the due date of the tax return, including extensions, if the contribution is included in the amount on line 5. Do not include any earnings or losses in this amount.

A Form 1099-R may have been received for this withdrawal. It would show a code "8" or a code "P" in box 7, depending on when the contribution was withdrawn. The gross amount withdrawn, including earnings or losses, should be shown in box 1 and the earnings should be in box 2a. Refer to the Form 1099-R Worksheet.

DO NOT enter the amount of any contribution that was withdrawn after the due date of the tax return, including extensions.

---

But doing the interview doesn't take me to line 6, only if I read the worksheet myself and fill it in. Which I assume means that I'm accidentally hacking a bug in the form.

[Tj137]

I also see so many posts encouraging people to enter a 1099 R on their own. What happens when that 1099 is different that the one their institution sends the IRS? I have my 1099 but it seems like the "taxable amount not determined" and a code 1 give flexibility to the taxpayer.

[fanfare]

The rigorous approach is to start with the earliest year and generate a correct tax return. Then on to the next year.

Each tax year is going to be affected by the forms generated by the previous year.

Your situation is too complex to be fixed up with back and forth on this forum.

===

"Taxable amount not determined" is used for IRAs, because the tax is going to be calculated on Form 8606..

[Tj137]

That makes sense, I agree. I just need to confirm some key facts:

Regarding withdrawing a non-deductible traditional contribution IRA before the tax due date in a year that it was not made in excess: is that just a normal early withdrawal of traditional IRA money and should have been treated as such?

if you do all the other parts of a 60 day rollover/roth conversion but you don’t tell the receiving institution, did you actually do a rollover?

thank you