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Total Basis in Traditional IRA with personal after-tax contributions and 401(k) rollover

2 transactions took place in late 2021:
1. A rollover from my old company's traditional 401(k) plan to a Traditional IRA, in the amount of 1,600.

2. A nondeductible contribution (i.e. after tax dollars) of 6,000 to a Traditional IRA.

Is my basis 6000, or 7600?

I ask because, although my 401(k) plan at this job is Traditional, meaning, pre-tax dollars, the IRS says this:
However, you may need to enter an amount that is more than -0- (even if this is the first year you are required to file Form 8606) or increase or decrease the amount from the chart if your basis changed because of any of the following:

  • You rolled over any nontaxable portion of your qualified retirement plan to a traditional, SEP, or SIMPLE IRA that wasn’t previously reported on Form 8606, line 2. Include the nontaxable portion on line 2.

(Source: https://www.irs.gov/instructions/i8606)


Since I rolled over a pre-tax account (401k) to another pre-tax account (traditional IRA), the money is not taxable, and this is my first year reporting a 8606 for my 6000 personal contribution, so according to the instructions above, 7600 would be my basis. However, it's pre-tax dollars, so this is seemingly a contradiction.

 

What gives?

 

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1 Reply

Total Basis in Traditional IRA with personal after-tax contributions and 401(k) rollover

No, your basis would be $6,000, not $7,600.

 

The 1,600 from the 401K remains pre-tax, therefore no basis.  If it was a distribution and became taxable, then it would add to the basis.

 

The wording is a bit misleading, but I think it means any after tax contributions in the 401K that would have basis in the 401K, that would carryover that basis into the new account.  Pretax contributions don't get basis until either distributed or converted to after tax.

**Disclaimer: Effort has been made to offer correct information; but due to the discussion forum limitations, the poster disclaims any legal responsibility for the accuracy of the poster's response**

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