Have a Trad IRA but thought it was a Roth, messed up some tax years. How do I fix this?

[benjamin-p-phill]

Hi there, thank you in advance for any help. 

I have a traditional IRA but I just realized in some years I treated it as a Roth IRA on my tax return and then on other years I treated it as a Traditional IRA. I would like to fix this so that all of the funds in it are legit. I think the best way forward would be for me to pay back taxes maybe, then convert it into a Roth. Here's what I did:

On my return for year 2011: I put in $1200 of contributions and counted them (incorrectly) as ROTH. So no deduction taken. 

On my return for year 2012: I put in $5000 of contributions and counted them (incorrectly) as ROTH. So no deduction taken. 

On my return for year 2013: contributed $5500 and correctly counted as traditional, so I took the deduction. 

On my return for year 2014: Same. I contributed $5500 and correctly counted as traditional, so I took the deduction. 

Now I want to clean this mess up. I would prefer to somehow pay the back taxes maybe so that I can convert it to a Roth. What's the best way to do this? Can it be done? Did it happen too long ago? What are my options? 

Thank you again

[macuser_22 · Accepted solution]

There is no back tax.  You can take care of this very simply without professional help.  Since you did not deduct the contributions there is no need to amend.  All you need to do is report the contributions that you did not deduct.  That is done on a 8606 form that can be filed separately and not on an amended return. It is too late to amend for a refund.

You simply have non-deductible Traditional IRA contributions  that you failed to report on a 8606 form at the time.   While there is a $50 penalty for failing to file a 8606, I have never heard of the IRS actually assessing it if the 8606 is filed late.

Assuming that the first non-deductible contribution was made in 2011 and you had no prior non-deductible contributions:

All you need to do is

1) file a 2011 8606 with the $1,200 on lines 1,2,3 and 14.

2) file a 2012 8606 with the $5,000 on line 1, $1,200 on line 2, $6,200 on line 3, and 14.

That will be your basis in the Traditional IRA and will not be taxed (on a prorated basis) when a distribution is taken or converted to a Roth.

When you take a distribution and have a 1099-R to report it you will be asked if you had any previous non-deductible contributions, you would enter the last filed 8606 box 14 amount that would be prorated over the distribution and the total years end IRA value that will reduce the taxable amount or the distribution because of the previous after-tax non-deductible contributions.

Here are links to the necessary 8606 form and instructions for 2011 and 2012.

https://www.irs.gov/pub/irs-prior/f8606--2011.pdf

https://www.irs.gov/pub/irs-prior/i8606--2011.pdf

https://www.irs.gov/pub/irs-prior/f8606--2012.pdf

https://www.irs.gov/pub/irs-prior/i8606--2012.pdf

[jessigy]

I made the same mistake on several tax returns where I reported a traditional IRA as a Roth iRA. If I amend my tax returns now, will I received a credit as I didn't take the deduction and paid taxes at the time I filed my tax returns?

[jessigy]

I made the same mistake on several tax returns where I reported a traditional IRA as a Roth iRA. If I amend my tax returns now, will I received a credit as I didn't take the deduction and paid taxes at the time I filed my tax returns?

[Carl]

You have to see a tax professional for this. TurboTax only supports their software for the current tax year and 3 years back. You flat out can NOT use TurboTax to fix the 2011, 2012 and 2013 returns, and you *have* to amend 2011 first. So you need to see a tax professional in your local jurisdiction who is licensed, certified and qualified to deal with this.

For amended returns more than three years back, if the amendment will result in you getting a refund, you will not get it. The 3-year grace period is past. But you may need to file it anyway, so that carryovers of your basis will be correct. This is why you *must* seek the services of a tax professional on this.

[1967jeff1967jeff]

Please, regarding the suggestion to "file a 2011 8606 with the $1,200 on lines 1, 2, 3 and 14," shouldn't line 2 be zero?

Thank you.