Any tax experts in the house? I'm not sure what if any tax consequences I will experience with the following maneuver, but I think I have to file a form 8606 for 2010, I'm just not sure how to fill it out. Here is a breakdown of events:
April 2010 - Opened a traditional (non-deductable) IRA account with $5k after tax money with the intent of converting it to a Roth as a workaround to the AGI limit.
April 2010 - Recharacterized a prior Roth IRA contribution from 2009 to the new IRA account $4980 (this was after I realized that we exceeded the AGI for Roth contribution when doing 2009 taxes).
Nov 2010 - Converted the original $5k that I opened the IRA with to the Roth.
So I think there is a problem because my accounts show that the Roth IRA contribution limit was reached for 2010 and the Traditional IRA contribution limit was also reached for 2010 even though the Roth IRA contribution happened in 2009 (the transfer to the IRA happened in 2010), so my statement shows the $5k I used to open the IRA as taxable (I guess it's picking it up as an over-contribution?). Since the Roth is after tax money and the non-deductable IRA is after tax money, there is really no income taxes to pay (both accounts are in cash right now), but somehow I need to make sure that the IRS has my cost basis correct for both accounts. Prior to 2009, all contributions were to the Roth since we were below the AGI limits and we didn't have a regular IRA until I opened one last year.
What do I need to do to straighten this out...I have never filed a form 8606 before and I don't think one is required if you solely contribute to a Roth, but now that the new IRA account has activity in it, I need to file one. Any thoughts?
April 2010 - Opened a traditional (non-deductable) IRA account with $5k after tax money with the intent of converting it to a Roth as a workaround to the AGI limit.
April 2010 - Recharacterized a prior Roth IRA contribution from 2009 to the new IRA account $4980 (this was after I realized that we exceeded the AGI for Roth contribution when doing 2009 taxes).
Nov 2010 - Converted the original $5k that I opened the IRA with to the Roth.
So I think there is a problem because my accounts show that the Roth IRA contribution limit was reached for 2010 and the Traditional IRA contribution limit was also reached for 2010 even though the Roth IRA contribution happened in 2009 (the transfer to the IRA happened in 2010), so my statement shows the $5k I used to open the IRA as taxable (I guess it's picking it up as an over-contribution?). Since the Roth is after tax money and the non-deductable IRA is after tax money, there is really no income taxes to pay (both accounts are in cash right now), but somehow I need to make sure that the IRS has my cost basis correct for both accounts. Prior to 2009, all contributions were to the Roth since we were below the AGI limits and we didn't have a regular IRA until I opened one last year.
What do I need to do to straighten this out...I have never filed a form 8606 before and I don't think one is required if you solely contribute to a Roth, but now that the new IRA account has activity in it, I need to file one. Any thoughts?