My wife and I filed tax jointly in 2016. She made a nondeductible IRA contribution via Fidelity investment in september of 2016. I made two nondeductible IRA contributions via Fidelity investment in January of 2017 and February of 2017. We used turbotax to file in march of 2017. When we were getting information downloaded from Fidelity investment to feed into the turbotax to do our tax filing, Turbotax generated a 8606 for my wife's IRA contribution but Turbotax did not generate a 8606 for my two IRA contribution. Now i went back and checked 2016 tax filing carefully, I do not see my two IRA contribution anywhere in the tax form, but my IRA contribution was recorded in form 5498 filed by Fidelity investment.
Now, I want to a roth conversion, but i should not until I need to resolve the missing 2016 form 8606 that Turbotax failed to generate?
I was told by someone on this forum to send in a stand-alone 8606 for the 2016 now, but I think that will raise a red flag to the IRS to trigger an audit.
What is the best course of action for me please? I read a similar question on this forum, and the answer to that question was not to do anything.
You have no choice.
You need to show a prior years basis on the 8606 of the year you do the conversion.
For that you need a previous year 8606 that shows your non-deductible contribution (s) . (otherwise your 8606 history is inconsistent, which. as far as audits go, might be more likely to cause an audit).
If you don't convert all at once, only a prorated portion of your basis is non-taxed and 8606 will do that calculation also.
Or if you never convert to Roth, without the 8606 the IRA contribution will be taxed twice when you withdraw it.
Failure to enter the IRA contributions in the program and indicate they were non deductible means a form 8606 for each of you was not populated. The error can be corrected by mailing in a form 8606 per person per tax year ... it is a stand alone form which doesn't need to be attached to a tax form.
Get the forms from the IRS.
When should I send in the 2016 form 8606 to minimize attention of the IRS and reducing the chance of getting audited.?
1) Should I send it in when I do my 2020 tax filing time at which I will also send in together a 2020 form 8606 and a 2016 form 8606 ?
2) my other question: can i do my back door roth conversion for my 2016 prior to sending my 2016 for 8606?
3) I plan to do a roth conversion for both my 2016 and 2020 traditional IRA together soon but I want to be sure that I can do this before sending my 2016 form 8606 and 2020 form 8606?
4) I still do not understand why Turbotax generated only my wife 2016 form 8606 and why it failed to generate a 2016 form 8606 for me in 2016?
5) Can I do a roth conversion for my 2020 traditional IRA first and then do another roth conversion for the 2016 traditional IRA later?
6) How do I ensure the 2020 turbo tax does not fail to generate 8606 in the future tax filing?
Thank you for your help
When should I send in the 2016 form 8606 to minimize attention of the IRS and reducing the chance of getting audited.? NOW
1) Should I send it in when I do my 2020 tax filing time at which I will also send in together a 2020 form 8606 and a 2016 form 8606 ? NO NOW ... if you make no non deductible contributions in 2020 you will not have an 8606.
2) my other question: can i do my back door roth conversion for my 2016 prior to sending my 2016 for 8606? It is too late for any new 2016 conversions. If you made one in 2016 then it must show on the 2016 form 8606.
3) I plan to do a roth conversion for both my 2016 and 2020 traditional IRA together soon but I want to be sure that I can do this before sending my 2016 form 8606 and 2020 form 8606? It is too late for a 2016 conversion ... window long closed.
4) I still do not understand why Turbotax generated only my wife 2016 form 8606 and why it failed to generate a 2016 form 8606 for me in 2016? Either you didn't complete the interview section correctly or you didn't check the IRA box. If you don't already have the 2016 downloaded program you may be able to get it now by using the amendment option ... then you can retrace your steps in the interview process.
5) Can I do a roth conversion for my 2020 traditional IRA first and then do another roth conversion for the 2016 traditional IRA later? Conversions don't happen in a vacuum ... you cannot move just the 2020 contributions ... may I suggest you seek local professional council to be educated in these matters.
6) How do I ensure the 2020 turbo tax does not fail to generate 8606 in the future tax filing? Pay attention in the 1099-R section so you answer all the questions properly ... then do NOT send the return until you have reviewed the entire thing and are satisfied it is correct. See the backdoor ROTH instructions below ...
Doing a backdoor Roth conversion is a two-step process.
As far as IRS is concerned you have only one IRA even if it is at two or more custodians.
If you do a conversion - all or part - report it on the return for the year you do that.
1) What is time window for doing a back door roth conversion after doing a nondeductible IRA contribution (assuming an 8606 is filed)
2) if it is too late for me to do the 2016 back door roth conversion, can I still do the 2020 back door roth conversion after doing a nondeductible IRA contribution and filing a 8606 for it?
Thank you
Ok ... stop thinking "2016" backdoor anything. On the 2016 return you cannot report any conversion at this late date if it was NOT done in 2016. What you need to do is report the non deductible contribution on the 8606 ASAP.
If the 2016 contribution is still in the IRA (and hopefully has been making money all these years) then you can make the conversion at any time now however be aware that the total conversion will not all be tax free ... any earnings converted will be taxable.
Thanks for helping me Critter3. My 2016 tradditional IRA is still in my tradditional IRA. I contributed 3,000 and today it is only 1,700. I lost money from having made some poor investment choices.
I will do an 8606 for the 2016 IRA contribution. MY question is
1) will it be just one single form 8606 for disclosing the 2016 IRA contribution to be submitted to the IRS. Should I need to send it by certified mail?
2) Is it only after I submit this 8606 for the 2016 IRA contribution, Can I then convert this 2016 IRA to a ROth conversion?
3) I also contributed another $2000 to the tradditional IRA last week (for the 2020 tax filing), and plan to do a roth conversion for this $2,000. I will make sure that Turbotax generates a 8606 for this $2000 contribution when I am doing the 2020 tax next year.
Question: Do you see any problem at all for me to do a roth conversion for the $2000, and then doing the roth conversion for the 2016 IRA contribution (only after i file the form 8606 for this 2016 contribution)
Thank you again
1) will it be just one single form 8606 for disclosing the 2016 IRA contribution to be submitted to the IRS. Should I need to send it by certified mail? One form and certified would be wise.
2) Is it only after I submit this 8606 for the 2016 IRA contribution, Can I then convert this 2016 IRA to a ROth conversion? It would be best to file the 8606 by the time you FILE the 2020 return... before then end of the year is better and ASAP is best.
3) I also contributed another $2000 to the tradditional IRA last week (for the 2020 tax filing), and plan to do a roth conversion for this $2,000. I will make sure that Turbotax generates a 8606 for this $2000 contribution when I am doing the 2020 tax next year. If you are doing a backdoor ROTH then you must convert the money asap so you don't have any earnings to transfer ... leave the money in a "cash" account until it is switched.
Question: Do you see any problem at all for me to do a roth conversion for the $2000, and then doing the roth conversion for the 2016 IRA contribution (only after i file the form 8606 for this 2016 contribution) Again ... you can do it now as long as you file the 8606 by year's end.
There is no particular reason to do your Roth conversion in two steps, unless you have two custodians. Yhen you will have to communicate your wishes to both custodians.
I hope the plan is to send all the funds into one Roth account so you will get rid of two IRA accounts and have one Roth account.
The best place for Roth money is a well-known self-directed Roth brokerage account (i.e. Schwab or Fidelity, not Robinhood).
There is no need to delay. If you have any earnings, that is taxable but that will be a small amount of money.
Today (8/18/2020) i did a roth conversion ($2000) for the 2020 traditional IRA contribution. I will do a 8606 for this $2000 contribtion when I do my 2020 tax filing time on April 15 2021.
For the remaining money balance in my tradditional IRA, which was contributed in 2016, and which Turbotax failed to generate a 8606 at the time of the 2016 tax filing, I chose to wait to do the roth conversion later only after I send in the 2016 form 8606 to the IRS. I will send in a stand-alone 2016 form 8606 to the IRS by certified mail with a return receipt to make sure someone at the IRS signs it for certifying that the IRS has received my 2016 form 8606.
Question 1: As soon as I mail in the 2016 form 8606, to the IRS, can I go ahead to do another Roth conversion for the remaining balance ($1700) in my traditional IRA account. My original contribution to the 2016 traditional IRA was $3000. I also have the 2016 form 5498 from my investment firm, Fidelity, showed that I contributed $3000 to the traditional IRA in 2016.
Question 2: Should I also include a copy of the 2016 form 5498 from Fidelity along with my 2016 form 8606 to prove that my original 2016 contribution to the traditional IRA was $3000 (even though the remaining balance in my tradditional IRA is now only $1700 which is a loss due to my bad choice of investment) ?
Thanks
Question 1: As soon as I mail in the 2016 form 8606, to the IRS, can I go ahead to do another Roth conversion for the remaining balance ($1700) in my traditional IRA account. YES
Question 2: Should I also include a copy of the 2016 form 5498 from Fidelity along with my 2016 form 8606 to prove that my original 2016 contribution to the traditional IRA was $3000 (even though the remaining balance in my tradditional IRA is now only $1700 which is a loss due to my bad choice of investment) ? NO ... only mail the 8606.
Turbotax was supposed to generate form 8606 to document my Non-Deductible IRA Contribution but I don't see the form in the final documents Turbotax generated online. The amount of the contribution appears on the 1040-SR and Schedule-1 where it should and the calculated refund reflects the deduction...but I don't know if the IRS will get the form 8606 from Turbotax so I will probably mail one just to be safe. The info was entered correctly and should have generated the form...it didn't
I have seen the IRS go back and ask for the 8606 forms from inception, even some they had. I recommend you mail one in. You should be keeping a financial notebook.
I want to urge you to create a financial notebook that is kept separate from your tax return. Keep it safe and each year, add your year-end statements from all your financial accounts plus a copy of your W2’s, 5498, and 8606.
This will protect you down the road as proof of your basis in your various investments. As you go through life, rollovers, ESPP sales, and more will be captured for you.
When you do sell, your notebook will be invaluable with knowing what was first, the order, the basis, and the lot size for stocks.
@GLynch
I opened a Traditional IRA Savings account with $7k of after-tax money to reduce my 2020 taxable income by that amount. All IRA contributions must be reported. That $7k gets reported on line 2 of form 8606 as Basis in the IRA and is a Deductible contribution. Line 1 for non-deductible contributions is "0". The headline of the form says "Non-Deductible IRAs" but that is misleading because my Deductible contribution gets reported on the form too. There is no other form to report it. Since TurboTax didn't generate the form because the the contribution was treated as a deduction I will send the form 8606 (with $7k deductible contribution on line 2) myself.
Is that $7k really post-tax money if you used it to reduce your taxable income? That's what it means to take it as a deduction, you deduct that amount from your taxable income, and that lowers your overall taxes. Some people don't qualify to reduce their taxable income with IRA investments, and yet they put money into them anyway. Funds that did not lower your taxable income are the ones that go on form 8606 and add to your IRA basis. There's a reason Turbo Tax did not generate form 8606 for you, you deducted those funds and lowered your taxable income, they are no longer non-deductible funds when you do that.