Rollover IRA Form 5498 Question - forgot to declare a deductible in 2021

[cririuss_ca]

I have Form 5498 documents  from 2020 and 2021 for my Rollover IRA account as follows:

(update: removing 2020 5498 discussion below as rollover contributions are NOT tax-deductible)

- 2020 Form 5498 has  the following info:

Line 1:  “Rollover Contributions” with  the $ money rolled over into my newly opened Rollover IRA account from my employer pension

Line 2: shows “Fair Market Value” with the RolloverIRA total  amount as of Dec 31 2020 (very slight difference)

- 2021 Form 5498 whis the following info:

Line 1 : “IRA Contributions” into  my  Rollover IRA (I contributed the max  contribution I made to my Rollover IRA from my personal bank account)  

 Line 2: “Rollover Distributions” which was actually a pension payment that Fidelity (my pension plan administrator) put into my Rollover IRA.

I  understand that the IRA basis for my Rollover IRA would be the 2021 “IRA Contribution” amount , but should  I also include  the the 2020 5489 “Rollover Contribution”  from 2020 5489 or the  the 2020 5489 “Fair Market Value” as the IRA basis?  

Adding one more  question below:

My TurboTax had carried over a $4000 Traditional IRA basis since 2016 for my two TRADITIONAL IRA contributions I made in the late 1990s (when I did not yet have employee benefits) .   I wonder should I also add at least the  2021 IRA Contribution amount of $7000 into the existing basis of $4000 in the  IRA Worksheet ?  Cause I forgot to deduct  the $7000 IRA contribution in my 2021 TurboTax.  

[dmertz]

Unless you rolled after-tax amounts from the employer plan to the Rollover IRA or you made nondeductible traditional IRA contributions, your basis is $0.

"My TurboTax had carried over a $4000 Traditional IRA basis since 2016 for my two TRADITIONAL IRA contributions I made in the late 1990s (when I did not yet have employee benefits) .   I wonder should I also add at least the  2021 IRA Contribution amount of $7000 into the existing basis of $4000 in the  IRA Worksheet ?  Cause I forgot to add the $7000 contribution in my 2021 TurboTax."

Although it's possible, if you were not covered by a workplace retirement plan the late 1990s, it's not clear why your contributions then would have been nondeductible.  However, if your employer at that time offered a pension plan despite you not being eligible for a defined-contribution plan, that could explain why those contributions were nondeductible.

If your $7,000 contribution for 2021 was nondeductible, that needed to have been reported on a 2021 Form 8606 where it would have been added to the $4,000 carried in from past years.  That would make your basis in nondeductible traditional IRA contributions be $11,000.  If the rollover to the IRA included after-tax basis, that would add to your basis in nondeductible traditional IRA contributions.  However, you have not mentioned that that rollover included any after-tax basis.

[cririuss_ca]

Hi @dmertz !  Thanks for your reply.

sorry that my question was confusing.  Thought I’d share a screenshot of my Tax Year 2021 Form 5498 below.

 

The 5498 form shows I made a contribution of $7000 (cash from my bank account) to my Rollover IRA in 2021, Line 7 shows  it is a traditional IRA contribution.    I initially thought I might have missed reporting that  2021 IRA contribution in my  1040 tax form for 2021 because Fidelity only issued Form 5498 but not 1099-R form.  Now I realize that 1099-R forms are for Distributions, not contributions.    

And speaking of contributions, I also realize that forgot to claim a deduction of $7000 for my IRA contribution in 2021 (checking my 2021 Form 1040 generated by Turbo Tax and I do not see it).  

I am afraid it might be too late for me to  amend the 2021 tax return to deduct my 2021 $7K deduction.  Google suggested that I do an 8606 for that  $7k contribution instead.  

[dmertz]

Yes, it's too late to amend your 2021 tax return to claim a deduction for the $7,000 contribution made for 2021.  However, as you found using Google, you could file a 2021 Form 8606 to report it as a nondeductible contribution since that would not be filing a claim of refund.  The slight downside to filing the 2021 Form 8606 is that the IRS might assess a $50 penalty for a late-filed Form 8606.  Still, $50 would be far less than the tax savings from adding $7,000 to your basis in nondeductible traditional IRA contributions.

[cririuss_ca]

Thank you @dmertz.  Better catching this now than never 🙂 

Can I fill up and file the 2021 Form 8606 using TurboTax desktop  (sinceI used it to file my 2021 tax)?

I believe this 2021 Form 8606 will impact the IRA  "basis"  (currently I have that $ 4000 traditional IRA basis that was carried over from years ago).     But I  think  I'll just go ahead and I file my 2025 tax  before the tax deadline   and  file my 2021 Form 8606  later (I hope there is no deadline for this, but target to file this by this May)   then  deal with the "change in basis" in the next tax year (which would require actually editing/overriding the   IRA worksheets that will be carried over to  TurboTax  desktop version 2026).  

What might be the pros and cons of it?  

Again, thank you very much. 

[dmertz]

If you still have 2021 TurboTax installed on your PC, you can use it to prepare the 2021 Form 8606.  Otherwise, it's rather trivial to prepare it manually.  Either way you'll need to print and mail the form.

As long as you have not made any nondeductible traditional IRA contributions for 2025 or traditional IRA distributions in 2025, you can file your 2025 tax return first.  As long as you made no such contributions or distributions after 2021, that 2021 Form 8606 will become the current documentation of your basis.

[cririuss_ca]

Thank you @dmertz !   

So I will file my 2025 tax first   then file the 2021 Form 8606 (where I will report the 2021 non-deductible contribution of $7000).  

Sorry - I  have one more  question for this post - this is for my  extra TO-DO item for Tax Year 2026:

I believe I will need to make just one  manual adjustment  in Turbo Tax 2026  as follows - am I correct? 

IRA Information Worksheet:

• add $7000 ( to be reported in the 2021 8606 form that I will send to IRS)  to the amount shown in  "Part III Traditional IRA Bais Detail,  Line 12 Basis for 2024 and earlier years"  as  this worksheet  does not currently include the  $ 7000 amount in Line 12 for the 2025 tax year (please see screenshot below).

Note to self:  I will store a copy of the 2021 Form 8606  (to be submitted to the IRS)  - and  store  copies   of Forms 1040 / 5498 / 8606  for every tax year going forward  to correctly track the IRA and Roth Conversion basis.

[dmertz]

Yes,  in 2026 TurboTax you'll need to correct the amount of basis that TurboTax is tracking for you, $11,000 instead of $4,000.

[cririuss_ca]

Appreciate it very much! 

[cririuss_ca]

Although I  think I might  only   use the $ 7000 next year as the existing basis and zero out the the original  $4000  IRA basis as I no longer have the  forms 1040/ 5498/ 8606  to prove the current existing IRA basis of $ 4000  :(    (unless there is another way to prove it).