1099-R and Roth Conversions

[DanaB27]

Yes, if made a nondeductible traditional contribution for 2021 and you haven't included Form 8606 with your 2021 return then you will need to file the 2021 Form 8606. Please see How do I amend my federal tax return for a prior year?

No, you don't have to wait to file your 2022 tax return. 

@Anonymous 

[maglib]

@Anonymous  @FangxiaL @pjz77 @l-andress  TT will automatically generate and fill out Form 8606 (Nondeductible IRAs) if you reported any of these on your tax return: Nondeductible contributions made to a traditional IRA. When you complete a Backdoor Roth conversion you MUST report it. When you go through the interview, the 8606 should be created during  the questions about basis.

If you decided to make the nondeductible contribution for 2021 and 2022 early in 2022  (since you can make a prior years IRA contribution up until tax filing), and convert both later in 2022, your form 8606 this year will just disclose the 2021 nondeductible contribution and when you file your 2022 taxes that form 8606 will have a nondeductible amount to carry over and a larger conversion amount.

Another note if you are married you and what one spouse has doesn’t impact the other’s ability to complete a Backdoor Roth conversion. That also means that if you both want to do this you have to file two 8606 forms. Do not list both your transactions on a single form.   

Another note be aware of aggregation rules the IRS has on IRA's. The IRS views all your IRA funds as one big IRA, even if they are in separate accounts. Example: You have $95,000 in an existing IRA and make an additional $5,000 nondeductible contribution to that, or any other IRA. When you try to convert that $5,000 nondeductible contribution to a Roth IRA tax free the IRS will say that only $5,000 of your $100,000 total (5%) has been taxed so only 5% can be converted tax free. This is known as the Pro-rata Rule. You have now moved $250 tax free to your Roth IRA but generated an additional $4,750 of taxable income at your considerably high tax bracket. To get around this rule if you do have other traditional IRA's is to go through your employer retirement plan such as a 401k. Your employer may allow you to roll your pre-tax IRA balances through them.

[Anonymous]

Hi!

One more question- do we need to also send in $100 penalty ($50 per person) along with the 8606 that we did not file for 2021 tax year? It shows that if you're required to file Form 8606 to report a nondeductible contribution to a traditional IRA for 2021, but don't do so, you must pay a $50 penalty.

Our situation is the similar as rest of this thread, only difference is

In Dec 2021, my spouse and I each mistakenly directly deposited $6000 into Roth IRA.

In Jan 2022, we realized our MAGI was too high for direct IRA contribution so we recharacterized the $12,000 from Roth IRA to Traditional IRA.

In Feb 2022, we did a conversion... rest is same as the thread..

In 2021 tax year, we did not file Form 8608. Now do we need to pay the $100 penalty.

Thank you~

[maglib]

@Anonymous 

You can file delinquent Forms 8606 without amending your tax returns. As you are aware, there can be a penalty of $50 for not filing Form 8606 on a timely basis, but the penalty can be waived if you can show reasonable cause for not filing.

You may also be able to make a recharacterization. If necessary, complete a new Form 8606 showing the revised information and file it with Form 1040-X.  This should have been processed if you did the amended taxes with TT.

Penalty for Not Filing

If you are required to file Form 8606 to report a nondeductible contribution to a traditional IRA for 2022, but don’t do so, you must pay a $50 penalty, unless you can show reasonable cause.

https://www.irs.gov/payments/penalty-relief-for-reasonable-cause

Read link which I pasted below in full. This is one where you just need to be careful what you claim as your reason....  It was not like it caused additional taxes.  

Reasonable Cause

Reasonable cause is determined on a case by case basis considering all the facts and circumstances of your situation.

Reasons that qualify for relief due to reasonable cause depend on the type of penalty you owe and the laws in the Internal Revenue Code (IRC) for each penalty.

Reasonable cause doesn't apply to certain penalties such as the estimated tax penalty.

For businesses, the reasons apply to the person with authority to submit the return, deposit, or tax.

Failure to File or Pay Penalties

You may qualify for penalty relief if you demonstrate that you exercised ordinary care and prudence and were nevertheless unable to file your return or pay your taxes on time.

Examples of valid reasons for failing to file or pay on time may include:

• Fires, natural disasters or civil disturbances
• Inability to get records
• Death, serious illness or unavoidable absence of the taxpayer or immediate family
• System issues that delayed a timely electronic filing or payment

For more information see Policy Statement 3-2.

The following factors don't generally qualify as valid reasons for failure to file or pay a tax on time:

• Reliance on a tax professional. You're generally responsible for complying with tax law even if someone else handles your taxes. You should know what your tax preparer files and get proof that your return or payment is sent on time.
• Lack of knowledge. You're responsible for knowing or getting advice on how to file returns and pay or deposit taxes on time. This includes filing requirements, deadlines and amounts you owe.
• Mistakes and oversights. You're responsible for making sure your tax returns, payments and deposits are correct and on time. In certain cases, reasonable cause may apply to a mistake if additional facts and circumstances show that you tried to comply with tax law.
• Lack of funds. By itself, lack of funds is not reasonable cause for failing to pay or deposit taxes due. However, you may qualify for relief based on other facts and circumstances that show you used reasonable care and tried to comply with tax law.

Accuracy-Related Penalties

If you received an accuracy-related penalty, you may qualify for penalty relief if you acted with reasonable cause and good faith. To determine whether you qualify, we consider factors including:

• Efforts you made to report the correct tax
• The complexity of the tax issue
• Your education, experience, or knowledge of tax law
• Steps you took to understand your tax obligation or seek help from a tax advisor

If you relied on a tax advisor, we may consider:

• Whether you provided all needed information
• Whether your advisor was competent and experienced with the tax situation

For more information see Treasury Regulation 1.6664-4.

Information Return Penalties

If you can show reasonable cause for failing to file accurate, timely information returns or payee statements, we may consider penalty relief if you prove:

• You acted in a responsible manner both before and after the failure by having:
  • Requested extensions of time to file when possible
  • Tried to prevent a foreseeable failure to file on time
  • Fixed any issues causing the failure
  • Corrected the failure as quickly as possible

• Along with acting in a responsible manner, you must also prove there were significant mitigating factors with respect to the failure or the failure happened due to events beyond your control such as:

• First time filer of the particular form or statement
• Good compliance history
• Actions by the IRS
• Actions of an agent
• Actions of another person
• Access to relevant business records
• Economic hardships that prevented electronic filing

For more information see Treasury Regulation 301.6724-1.

Apply for a Payment Plan

If you can't pay the full amount of your taxes or penalty on time, pay what you can now and apply for a payment plan. You may reduce future penalties when you set up a payment plan. 

How to Request Penalty Relief

We may reduce or remove some penalties over the phone. Call the toll-free number at the top right corner of your notice to request penalty relief for reasonable cause and have supporting documentation.

Have this information when you call:

• The notice we sent you
• The penalty you want relieved
• The reasons you think we should remove it

During the call, if you apply for reasonable cause but we "determined" you qualify for First Time Abate, we'll apply the latter. If you don't qualify for either or we can't approve your relief over the phone, you can request relief in writing with Form 843, Claim for Refund and Request for Abatement.

To reduce or remove an estimated tax penalty, see:

• Underpayment of Estimated Tax by Individuals Penalty
• Underpayment of Estimated Tax by Corporations Penalty

Explain the facts and circumstances around your late return, deposit, or payment, including:

• What happened and when it happened
• How the situation prevented you from filing your return or paying your tax on time
• What attempts you made to file or pay your taxes

You should also include supporting documentation such as:

• Hospital, court records or a doctor's letter to confirm illness or incapacitation, with start and end dates
• Documentation of natural disasters or other disturbances
• Copies of relevant written letters and responses
• Copies of receipts, forms or other documentation 

How to Appeal a Penalty Relief Decision

If you received a notice or letter saying we denied your request for penalty relief, see Penalty Appeal Eligibility for next steps.

Interest Relief

We charge interest on penalties. Interest increases the amount you owe until you pay your balance in full.

We'll automatically reduce or remove the related interest if we reduce or remove any of your penalties. Find more information about the interest we charge on penalties at Interest.

[Anonymous]

Ok got it, since we don't have a reasonable cause, we will also send along a check of $100 penalty for $50 per person. Thank you!