I failed to report a nondeductible traditional IRA contribution on the 2016 tax forms, but invest firm generated a 5498 which showed the contribution.

[macuser_22]

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@ahbn41 wrote:

Macuser wrote..."Any carry forward non-deductible contributions on line 2,.."

I do not understand this part, about "any carry forward..."

My balance in the traditional IRA in 2015 was about $250 which came from years ago (probably a contribution in 1990s that I do not remember.)  The $250 was sitting there and forgotten all this time .   Do i put the $250 on line 2?

Line 2 is not the IRA balance but any prior years non-deductible contributions reported of other years on a 8606 form for that year.   The line 2 amount comes from line 14 from the last 8606 form that was filed.

[ahbn41]

Macuser_22,

You did not see or read my earliest posts. I intend to do backdoor roth conversion. My wife and i  jointly filed.  I am over 50s since 2016. I was told that my maximum NONdeductible IRA contribution is $7000.  I contributed $3000 in 2016 and $2000 in 2020 so far.  

I do not understand what you are trying to tell me. Please explain

Thanks

[ahbn41]

Oh no.  It was years ago, and I do not have good record of it. I contributed some monies in the 90s probably because someone at work said that I should. 

Questions:

What should i put on line 2 then? 

My fidelity investment has record up to 2013 and the balance was around $240 in 2013.  Balance changed as stock price changes. In 2014  the balance was 245, and 2016 was baout $250. I do not remember my probably first tradditional IRA contribution amount becasue I no longer have any record of it.

Thanks

[macuser_22]

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@ahbn41 wrote:

Macuser_22,

You did not see or read my earliest posts. I intend to do backdoor roth conversion. My wife and i  jointly filed.  I am over 50s since 2016. I was told that my maximum NONdeductible IRA contribution is $7000.  I contributed $3000 in 2016 and $2000 in 2020 so far.  

I do not understand what you are trying to tell me. Please explain

Thanks

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Read the IRS Publication.

The maximum that you can contribution is the LESSER of $7,000 OR your taxable compensation for the year.   As long as you (and your spouse on a joint) return had at least $3,000 of taxable contribution the  no problem.    

(I was only answering your prior question about why you might not qualify by posting the IRS rules so yiu could read the "why" for yourself.).

Be sure to enter your $2,000 2020 non-deductible contribution in the 2020 IRA contributions section when doing 2020 tax next year, so that it will appear on line 1 of your 2020 8606 form.    Your 2019 $3,000 nondeductible contribution (from line 14 on the 8606 that you are mail would be entered in the 1099-R interview when it asks for non-deductible contributions.    That would go on line 2 of the 2020 8606 and the total of $5,000 would be on line 3 to offset the tax computed for the "backdoor Roth" on lines 6-15.

[ahbn41]

Macuser-22, I may have originally contributed more than $250 in my traditional IRA account in the 1990s. i  bought stocks with the original contribution money, and of course i lost money because of the bad stock. All i can tell now through my fidelity investment record is that I have about $250 balance in my traddional IRA in 2015.

I do not have any record of this original traditional IRA contribution, what should I put down on line 2 of 8606.

Thanks

[macuser_22]

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@ahbn41 wrote:

Macuser-22, I may have originally contributed more than $250 in my traditional IRA account in the 1990s. i  bought stocks with the original contribution money, and of course i lost money because of the bad stock. All i can tell now through my fidelity investment record is that I have about $250 balance in my traddional IRA in 2015.

I do not have any record of this original traditional IRA contribution, what should I put down on line 2 of 8606.

Thanks

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Zero.

[ahbn41]

Here is the sequence of events:

1) I contributed X amount of dollars (dont remember the amount) to my tradditional IRA in 1990s.  Balance in my traditional IRA as of 2015 was only $250.

2) in 2016, I contributed $3000 to my traditional IRA. Turbotax failed to generate my  8606 for the 2016 filing year.  My wife and I were not aware of the back door roth conversion. I invested in bad stocks. Balance of my traditional IRA in 2016 was $2,200

3) in 2020 so far, I contributed $2000 to my traditional IRA.  Balance in my traditional IRA was $4,200 and I converted this $2000 to my roth IRA a couple days ago. I chose not to convert the remaining of my tradditional balance because I found out that an 8606 was not filed in 2016. That year Turbo tax failed to generate a 8606 for me.

4) in August of 2020, I went online and seeked for help here on this forum, Thanks to Critters who has advised me to do a stand alone 8606 for the 2016, and that is wheo re I m right now. I am stuck while filling out this form because I do not know what to put on line 2 of the 8606. I do not remember my IRA contributions in 1990s. Does it matter or is it important at all since the money I contributed in the 1990s was lost due to bad stock investment.  All I know now is that i have a balance of $2,200 in my tradditional IRA , and I need to send in the 2016 form 8606 and after that i need to convert it to my roth IRA.  Thank you for the long history

[macuser_22]

What you did on the 90's is immaterial if you have no records and do not know the exact year.  For the 3rd time enter 0 (zero) for the 2016 8606 form line 2.

[ahbn41]

  sorry it took time for me to type my long sequence of events while you must have answered my questions twice and I did not even have a chance to read your reply.

Thank you very much for your help and critter-3's help. I will send this 8606 in today.  Will put 0 on line 2

i need to ask another dumb question:  Nowhere on the 2016 instruction i can find a mailing address for form 8606.  IRS must have many address but not anywhere o the instruction form. 

Thank you again

[macuser_22]

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@ahbn41 wrote:

  sorry it took time for me to type my long sequence of events while you must have answered my questions twice and I did not even have a chance to read your reply.

Thank you very much for your help and critter-3's help. I will send this 8606 in today.  Will put 0 on line 2

i need to ask another dumb question:  Nowhere on the 2016 instruction i can find a mailing address for form 8606.  IRS must have many address but not anywhere o the instruction form. 

Thank you again

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Depends on your state - same address as a 1040 form.

https://www.irs.gov/filing/where-to-file-paper-tax-returns-with-or-without-a-payment

[ahbn41]

Thanks again Macuser-13;

Will this submittal of 8606 for the nondeductible of $3000 in 2016 have any effect on my tax amendment ?

Since this is a nondeductible IRA contribution, i did not deduct the $3000 from my  2016 taxable wages.  In my opinion, submittal of this 8606 should not affect my tax filing at the federal or state level , am I correct?

[macuser_22]

Correct.

[macuser_22]

One suggestion:    Since you mentioned "backdoor Roth",  I suggest that you research it first - google it to avoid surprises.     You mentioned that $3000 was all you could afford, but the only reason that a "Backdoor Roth" is used to allow taxpayers that have an income so high (Married jointly over $190,000) that they cannot contribute directly to a Roth IRA, but do it "backdoor".   If your MAGI is less than  that and you want a Roth then  just contribute to a Roth in the first place and don't mess with a "backdoor".

The "Backdoor Roth" does not exist in tax law. It is a procedure used by some to take advantage of a quirk in tax law that allows making a non-deductible contribution to a Traditional IRA when one cannot contribute to a Roth IRA, and the immediately converting the Traditional IRA to a Roth IRA, thereby getting the money into the Roth via "backdoor".

That "procedure" can only work of all these requirements are met otherwise there will be some tax.
1) No Traditional IRA account whatsoever can exist (that includes any SEP or SIMPLE IRA accounts) at the start.
2) The Tradition IRA contributions must be reported on a 8606 form as non-deductible.
3) The conversion to a ROTH must be shortly after the contribution to avoid taxable gains.
4) The entire Traditional IRA value must be zero that the end of the year of conversion.

[ahbn41]

Macuser,

 (You mentioned that $3000 was all you could afford, but the only reason that a "Backdoor Roth" is used to allow taxpayers that have an income so high (Married jointly over $190,000) that they cannot contribute directly to a Roth IRA, but do it "backdoor".   If your MAGI is less than  that and you want a Roth then  just contribute to a Roth in the first place and don't mess with a "backdoor".)

Answer: my wife makes lots more money than i do ever since I cannot remember, the total joint income has been over the limits or over the adjustable gross income depending on which year it is,  she has been contributing nondeductible IRA contributions all these years consistently even before the back door roth conversion came about.  I, on the other hand, made small traditional IRA contributions whenever I could, which was seldom.  She and I were unaware of the backdoor roth conversion and I just learned about it recently.  I will help my wife asking the experts here questions about helping her doing roth conversion of her IRA contribution from  all these year at another time.  Today I want to focus on my pending 8606 and I want to do the back door roth conversion soon. 

I will answer your questions in the same order of your questions.

That "procedure" can only work of all these requirements are met otherwise there will be some tax.

1) No Traditional IRA account whatsoever can exist (that includes any SEP or SIMPLE IRA accounts) at the start.

Answer: I only have one  personal IRA account at this time with fidelity. I do have a 401K at work but it is not an IRA.  I do not remember well but I may have started it out with a deductible IRA account  with Schwab before I got married, but I lost 99%  of my contribution from poor choice of stock investment over  the years.  I believed I must have rolled the remaining IRA to a rollover IRA account at Fidelity in the early 2000s.  Today, the balance of my rollover IRA is $277. I lost money from having invested in stock.  I believe I opened up a traditional IRA  account at Fidelity in the early 2000s and contributed little money in there.  My traditional IRA record is only as good as what Fidelity can provide which goes back to 2012. Apparently the balance in my tradditional IRA shows about $220 to $250 from 2012 to 2015 until I made a significant contribution amount of $3000 in 2016, and $2000 so far in 2020.  Recently I learned about back door Roth contribution, and this is exactly what I want to do as soon as I file the 2016 form 8606. The thing that is going for me is that whatever contribution i had contributed before 2016, I lost almost all of my contribution money . It is like I am starting my life over with my first IRA contribution in 2016.  Question: does that sound right to you? 

2) The Tradition IRA contributions must be reported on a 8606 form as non-deductible. Answer: I am filing the 2016 form 8606 today and i will file the 2020 form 8606 when we do the tax filing in April of 2021.

3) The conversion to a ROTH must be shortly after the contribution to avoid taxable gains. Answer: Yesterday I converted the $2000 from this year 2020 traditional IRA to the roth IRA at Fidelity. I  plan to convert the remaining balance of $2,200 (contributed in 2016 ) after I mail in the 2016 form 8606 

4) The entire Traditional IRA value must be zero that the end of the year of conversion:  Answer: This is a new piece of information for me, but I believe I can convert the remaining IRA balance to the roth account within the next couple days after I have proof of sending in my 2016 form 8606.

Please let me know what you think of my answers. Im running to the post office right now to mail out the 8606 .

Talk to you later.  Thank you for your help

[macuser_22]

If is very common for people to hear about the "backdoor Roth" without understanding all of the possible pitfalls.   You can still make non-deductible contribution and Roth conversions but to be a true Backdoor Roth with zero tax, all of those conditions must be met, otherwise some of it will be taxable.

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.