IRA basis

[PFP2]

Until 2013, I had a traditional IRA that included nondeductible contributions so the IRA included basis.  The IRA was rolled eventually over to a 457b Plan.  I am now taking distributions.  The 1099R I received does not have the IRA/Sep/Simple Box checked because it is a 457b Plan.  Is there a way to access the screen in Turbotax which asks whether you have any nondeductible contributions to report without having the IRA/Sep/Simple box checked.  Thanks.

[DianeW777]

No, not for your 1099R because it's no longer an IRA.  In your situation, you should have removed the basis portion of your IRA before rolling it over to the 457b plan.  

Potential solution: You should have your Form 8606 that was filed with your return(s) when you were carrying that cost basis.  If so, you could use that form manually to determine the amount of tax free distribution portion that would have been allowed if it was still in your IRA.  If that figure is calculated, you could reduce your 1099R taxable amount by the calculated figure.

No guarantee for IRS approval.

[dmertz]

"The IRA was rolled eventually over to a 457b Plan."

Rolling over to a 457(b), 401(k), 403(b) or the federal TSP any basis in nondeductible traditional IRA contributions is not permitted.  If such a rollover is done and not corrected, as appears to be the case here, the basis is lost and the amount becomes taxable a second time.

[PFP2]

Thanks.  Would the IRS allow  for a rollover of the money from the 457b plan back to a traditional IRA and then allow me to claim basis on future distributions from the IRA?  In the 457b plan I am in, it categorizes the money in terms of whether it was a deferred compensation pre-tax contribution or a qualified rollover pre-tax contribution.  I'm assuming the latter is money from the earlier IRA rollover.   Assuming the 457b contract allows for partial rollovers, I'd only rollover the money from the second category i.e. money from the original IRA.  This would solve my Turbotax problem because the 1099R have the IRA, SEP, Simple Box checked.  Would  it past muster with the IRS?

[dmertz · Accepted solution]

Because regular contributions and their earnings in a 457(b) are never subject to an early-distribution penalty, rollovers from non-457(b) accounts which are subject to early-distribution penalties are required to be segregated from the rest so that early-distribution penalties can be applied on that portion when required.  That's why you see the separate portions tracked separately.

I don't know if the IRS would recognize your basis as still being present in your traditional IRAs.  When you rolled the funds over to the 457(b) you were required to certify that the funds contained no basis in nondeductible traditional IRA contributions.  Still, there are plausible scenarios, not quite the same as your circumstances, where basis could still be considered to be in your traditional IRAs.  For example, if you rolled over to the 457(b) all but your basis in nondeductible traditional IRA contributions and the value of the remaining investments in your traditional IRAs dropped, maybe even to zero through failed investments, you could end up with more basis than value.  The value in traditional IRAs could then be brought back up above your basis through contributions or rollovers to make the basis recoverable.  However, that basis is certainly gone if you ever (before 2018 when such deductions became suspended by the Tax Cuts and Jobs Act) took a miscellaneous deduction for the unrecoverable basis.  If you did not take such a deduction, your traditional IRA basis should still be as recorded on your last filed Form 8606 which you could justifiably carry forward to line 2 of the next Form 8606 that you file.

[PFP2]

Thanks for the detailed response.