Is a 401k Plan considered a "Traditional IRA" for purposes of inclusion on Line 6 of Form 8606

[shellsbush180]

In 2013 I took a qualified distribution from my "Traditional IRA".  I had made Nondeductible contributions to the "Traditional IRA" in previous years and filed a Form 8606 so i have Basis.  I also have a "Rollover IRA" that represents funds from a previous employer's 401k plan.  The "Rollover IRA" has No Basis.  I also have a "401k Plan" (although I am retired and no contributions are currently being made)".  The "401k Plan" has No Basis.  

For Form 8606 purposes of determining the fair market value of all of my "Traditional IRAs" at 12/31/13 do I include the "Traditional IRA" plus the "Rollover IRA" plus the "401K Plan"?

I note that instructions for Form 8606 state "for purposes of Form 8606 a traditional IRA is an individual retirement account or an individual retirement annuity other than a SEP, Simple, or Roth IRA."  Also "A qualified employer plan (retirement plan) ... is a Deemed IRA."  Not sure exactly what that means but it sounds like the 401k Plan is considered a Traditional IRA for Form 8606 purposes??

[RobertW · Accepted solution]

shellsbush180 -

Hello - do not include the balance of your 401(k) on lins 6 of the 8606 but you do include the balance of the "Rollover IRA".  You do not include the 401(k) because it is up to the plan administrator to keep track of any after tax contributions but once they become IRA's the burden is on you.

Deemed IRA's by definition do not include 401(k)'s because 401(k) plans are not a separate account or annuity.  You are just "part" of the entire plan.

Deemed IRAs.

A qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. An employee's account can be treated as a traditional IRA or a Roth IRA.

For this purpose, a "qualified employer plan" includes:

• A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan),
• A qualified employee annuity plan (section 403(a) plan),
• A tax-sheltered annuity plan (section 403(b) plan), and
• A deferred compensation plan (section 457 plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state.

Hope this answers your question.  If you have any more questions please let us know.

We are here to help.

Thanks for using TurboTax

[fcgamza]

For the purpose of calculating a RMD for your IRA accounts, I deduce that you don't include that 401(k) amount until converted to a true IRA account.  Thanks.

[LeslieB]

No.  Do not include your 401K qualified retirement plan amounts as they are not considered Traditional IRAs for reporting on an 8606.  A deemed IRA is one in which a qualified employer plan (retirement plan) maintains a separate account or annuity under the plan to receive voluntary employee contributions.

The purpose of this 8606 is to establish your basis in your true IRA accounts.  It is to report:

• Nondeductible contributions you made to traditional IRAs;

• Distributions from traditional, SEP, or SIMPLE IRAs, if you have ever made nondeductible contributions to traditional IRAs;

• Conversions from traditional, SEP, or SIMPLE IRAs to Roth IRAs; and

• Distributions from Roth IRAs

Let me know if this resolves your tax question. Thank you for choosing TurboTax.  Have a wonderful day!  ~Leslie, EA

[gfc0826]

Does this mean when I rolled my 401K retirement plan money into an IRA at the end of 2018, I now have to include the 401K pre-tax rollover amount on line 6 of form 8606 as "Traditional IRA" money?  This will increase the amount of deductible IRA money I have in my total since my entire 401K money was pre-tax. I have other IRA money with another provider which is about 50% non-deductible.  When I do a Roth conversion from my other IRA provider, the % of the conversion which is taxable will increase since I now have more traditional IRA in the total.  When it was in the 401K, I did not have to include on line 6 of Form 8606.  This does not seem fair. Any way to get around it? Can you file two form 8606, one for the 401K conversion and the other for my other IRA's? Will the IRS pick up on it, if I keep the money separate?

[macuser_22]

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@gfc0826 wrote:

Does this mean when I rolled my 401K retirement plan money into an IRA at the end of 2018, I now have to include the 401K pre-tax rollover amount on line 6 of form 8606 as "Traditional IRA" money?  This will increase the amount of deductible IRA money I have in my total since my entire 401K money was pre-tax. I have other IRA money with another provider which is about 50% non-deductible.  When I do a Roth conversion from my other IRA provider, the % of the conversion which is taxable will increase since I now have more traditional IRA in the total.  When it was in the 401K, I did not have to include on line 6 of Form 8606.  This does not seem fair. Any way to get around it? Can you file two form 8606, one for the 401K conversion and the other for my other IRA's? Will the IRS pick up on it, if I keep the money separate?

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#1) Yes, *Any* money in *any* Traditional, SEP or SIMPLE IRA must be included on line 6 on the 8606 form.

#2) A Roth conversion (so called "Back door" Roth) *only* works if you start with a zero value on all IRA accounts and end with a zero value.   Otherwise the non-deductible "basis" must be pro-rated over the Roth conversion and the total year end market value of all IRA accounts which can make most of the Roth conversion  taxable.

#3) Not, there is no way around this.

#4) Fair or unfair the "backdoor Roth" was never intended to be a method of contributing to a Roth IRA when direst contributions cannot be made, but many taxpayers have found that "loophole" that Congress has not closed and outlawed, but there can be pitfalls if not done properly.

#5) No, IRA money cannot be "separated".   For tax purposes you only have one Traditional IRA that can be split into as many accounts as you want. but for tax purposes (and line 6 on the 8606) is the aggregate total of ALL Traditional, SEP and SIMPLE IRA accounts combined.  You can only file one 8606 per taxpayer.

#6 Will the IRS catch it?   Probably in about two years when the 1099-R's and 5894 back statements are matched with what was reported on your tax return.    Interest and late penalties start from the due date of the tax return.