Basis in an IRA

[Texas Proud]

This find has actually shocked me as I had not thought I had done this...


But, I was looking at some of my older tax returns since I was talking to my sister about how much I used to pay in taxes and how little I do now... she still pays as her and her DH both have pensions plus investment income...


While looking at my 2007 tax return I noticed that I had form 8606, non-deductible IRA contributions... I do not remember making these but it is there on the return... I cannot find a PDF of the 2008 yet, but I doubt I did anything as I was laid off and also got married then...


So, anybody with experience with having a basis in an IRA? Do I have to deal with this the rest of my life when I start taking out distributions?


I know I did conversions to ROTH, but I think I did those before this contribution but will have to go back and look....


Man, what a pain




Edit to add.... this is even more strange... I do not have an tIRA that I can find at the time... my tIRA is a rollover from my work done in 2014... my money was either in my 401(k) or a ROTH....


Now I have to go back even farther and see what I did.... this is going to take awhile... and I might not even do anything as it was $9K and the tax savings on that spread out will probably be a rounding error...

 

[pb4uski]

+1 if it is small then I think you can safely ignore and assume that your basis is zero and that all withdrawls are 100% income.

 

[jebmke]

I have a basis in my IRA. It is no big deal. A couple of entries at tax time and the software will complete form 8606 and adjust the taxable amount on your 1040 for a pro-rata share of the basis as it rolls out.

 

[gerntz]

+1 if it is small then I think you can safely ignore and assume that your basis is zero and that all withdrawals are 100% income.

Yep. Governments will accept that bit of extra tax.

 

[pb4uski]

Yup. But OTOH at 20% that is $1,800 plus growth on a $9,000 contribution, so that might be worth a little bit of entries at tax time.

I intentionally only did deductible contributions to avoid it.

 

[bingybear]

In the early 90's we contributed both before and after tax to our 401k (Roths did not exist and before tax contributions were somewhat limited. Our employer allowed extra after tax contributions. Note, I don't recall the details to the late 80's. When we changed employers we rolled to a TIRA (no roth at the time). Also at that time you could not roll a TIRA to 401k if it had been tainted with other IRA monies.

So, yes I've dealt with a non-zero tax basis. If you've done your taxes correctly the tax basis should be on your 8606.

I had considered a FA several years back. One thing they wanted was documentation for all after tax TIRA contributions. I checked mine and found all of them. Some were on 1099Rs. Finding all the documentation is a pain if you don't have a decent storage. Most tax software makes filing this easy with the exception of when you change software, that is if it does not carry all the old data over. Also, tax software may not carry over data (or print forms) that are not needed. I'm guessing an 8606 may not be required if you don't have an event affecting it. I could be mistaken as it may be filed without my noticing.

It is not that complicated of an item if you have the records and reasonable software.

At one point our combined tax basis was about $70k. I figure I have the numbers and the software, it is trivial to add it to my tax return. If I didn't have the data, then I might consider paying extra taxes. If you filed your taxes correctly, your latest 8606 likely has the correct number. In this case you already have the tax basis.

What makes you case difficult?

 

[audreyh1]

Yeah, I made after tax contributions because I was limited in the amount I could invest in our 401K and Roth - high earner. It’s a pain how it is prorated over all IRAs for the life of them.

My basis has been carried through over the tax years. I used the same tax software.

 

[Hermit]

I had ~$25k in post tax contributions and gains in my 401k. About $12k were contributions. When I rolled my 401k to an IRA, the post tax contributions went to a Roth. The gains had to go to the IRA so I will have to pay income taxes on those. Distributions from the 401k always included a post tax portion. Rolling the whole 401k was the only reasonable way to get the post tax contributions into a Roth.

 

[JoeWras]

So, anybody with experience with having a basis in an IRA? Do I have to deal with this the rest of my life when I start taking out distributions?

You can always ignore it and make your basis 0, which is was most people have. The IRS won't mind.

The carry forward math is worth it. I've been doing it for 15+ years. Next year, look forward to starting some Roth conversions and doing a little math to get my pro-rata share.

Despite my wise cracking comment about 0 basis, just keep in mind once you start taking out (conversion or otherwise), deal with it. You can't pick and choose which year to use your basis. It is a pro-rata.

 

[38Chevy454]

When I rolled my 401k to an IRA, the post tax contributions went to a Roth. The gains had to go to the IRA so I will have to pay income taxes on those.

Same situation for me, and this is same as what I did when I took the money out of the former employer 401k and moved to IRA accounts (Roth and traditional).

 

[GrayHare]

Do I have to deal with this the rest of my life when I start taking out distributions?

Yes. The tax forms will guide you but the resulting prorata calculations always look odd to me.

One way around the problem is to Roth convert all your tIRA money, then the prorating goes away.

 

[kaneohe]

.........................................

It is not that complicated of an item if you have the records and reasonable software.

.......................................................

I agree..................and even w/o software. I can understand the opposite feeling tho I suspect it comes mostly from those who haven't dealt w/ F8606 before. I used to feel the same way too until I read Nords insisting that it wasn't so bad. It's bad thinking about it in the abstract but F8606 leads you step by step thru the process. It might take 10-15 min at the max w/ the worst part looking up the yr. end value of the TIRAs, esp. if you have multiple accounts. ............and software isn't necessarily idiot-proof either. There are multiple threads on Bogleheads about botched backdoor Roth conversions.........might not be the software either but the human/software combo.

 

[LOL!]

I'm also a taxpayer that had a basis in a traditional IRA due to non-deductible contributions more than 15 years ago.

Although one filed a Form 8606 in the years one made non-deductible contributions, one did not have to file a Form 8606 in years that one made no non-deductible contributions and also no withdrawals. So for me, no Form 8606 was needed until I started Roth conversions.

And now that I am done converting the entire traditional IRA to a Roth, I no longer have to worry about Form 8606 until I rollover my 401(k) to an IRA and start the conversion process once again.

Based on threads over on Bogleheads.org many taxpayers forget about Form 8606 or fill it out incorrectly even with tax prep software. They get CP2000 letters from the IRS. So the idea that Form 8606 is easy might be true, but many folks don't get easy.

 

[COcheesehead]

I have a basis in my IRA. It is no big deal. A couple of entries at tax time and the software will complete form 8606 and adjust the taxable amount on your 1040 for a pro-rata share of the basis as it rolls out.

Me too. I never looked at it as something to be concerned with. My tax software handles it well. I have no worries.

 

[gauss]

I'm also a taxpayer that had a basis in a traditional IRA due to non-deductible contributions more than 15 years ago.

Although one filed a Form 8606 in the years one made non-deductible contributions, one did not have to file a Form 8606 in years that one made no non-deductible contributions and also no withdrawals. So for me, no Form 8606 was needed until I started Roth conversions.

Once I realized what it would take (tax filing wise) to receive Roth distributions before age 59 1/2 tax free, I started forcing an 8606 to be filed every year.

The first one was a bear going back through 10+ years of transactions. Now it is more manageable in that the numbers from the prior year 8606 and the current year transactions will determine the amounts for the current year 8606.

-gauss

 

[Texas Proud]

My big problem that will take some research is that right now I have only one tIRA... it was a rollover from a 401(k) in 2014...


I cannot find a tIRA at this time that I had in 2008... and my DW messed up my tax files since she did not think they were important.... and I never put them back together as I did not either.. still have all the stuff though...

 

[pb4uski]

Sounds like a good cold or rainy day project to me.

 

[gauss]

You can go back ~ 10 years and request copies of your "Wage and Income" transcripts for each year from the IRS.

The form 5498s should be especially enlightening in helping you reconstruct this in that they show contributions, rollovers, conversions etc received by each IRA/401k each year.


If you have all of your 5498s and 1099-Rs and tax returns then you should be able to figure this out.

Wage and Income Transcript - shows data from information returns we receive such as Forms W-2, 1099, 1098 and Form 5498, IRA Contribution Information. Current tax year information may not be complete until July. This transcript is available for up to 10 prior years using Get Transcript Online or Form 4506-T.

-gauss

 

[gauss]

This is one of the main reasons that I mention that if there is no good reason to roll a 401k to an IRA then don't do it. With a 401k the plan sponsor is responsible for tracking basis and reporting taxable amount to you for each distribution.

With an IRA, on the other hand, the taxpayer is responsible for keeping track of this over the long term.

-gauss

 

[COcheesehead]

much ado about nothing

 

[jebmke]

This is one of the main reasons that I mention that if there is no good reason to roll a 401k to an IRA then don't do it. With a 401k the plan sponsor is responsible for tracking basis and reporting taxable amount to you for each distribution.

With an IRA, on the other hand, the taxpayer is responsible for keeping track of this over the long term.

-gauss

If is fairly easy now to roll the after-tax portion to a ROTH IRA now. I did a split roll in 2013; my AT amount went to ROTH and the pre-tax part to a Rollover IRA.

 

[Texas Proud]

You can go back ~ 10 years and request copies of your "Wage and Income" transcripts for each year from the IRS.

The form 5498s should be especially enlightening in helping you reconstruct this in that they show contributions, rollovers, conversions etc received by each IRA/401k each year.


If you have all of your 5498s and 1099-Rs and tax returns then you should be able to figure this out.



-gauss

I have all of my tax returns on PDF from 2007 to 2017 right now except 2008. Since it is the 2007 where I see the form I would need returns prior to that.



Now that I have been thinking about this for a bit... I wonder if I had done a back door ROTH. This would be a reason that I do not have a tIRA to match this too. Need to find that 2008.

 

[Sunset]

I have all of my tax returns on PDF from 2007 to 2017 right now except 2008. Since it is the 2007 where I see the form I would need returns prior to that.

Now that I have been thinking about this for a bit... I wonder if I had done a back door ROTH. This would be a reason that I do not have a tIRA to match this too. Need to find that 2008.

I don't see why as the 8606 is a ongoing, total for the current year, so it has the numbers from the beginning of time.

It will mean a savings of your highest tax rates whenever you withdraw from an IRA, so it could easily be worth nearly 2K of taxes over your life time.

If you use tax software, the hard part is the first time, after that, the software keeps track.

 

[Texas Proud]

I don't see why as the 8606 is a ongoing, total for the current year, so it has the numbers from the beginning of time.

It will mean a savings of your highest tax rates whenever you withdraw from an IRA, so it could easily be worth nearly 2K of taxes over your life time.

If you use tax software, the hard part is the first time, after that, the software keeps track.

Actually the software did not put one in for 2008... I did change from 2007, but it should have read that info...

 

[cathy63]

Now that I have been thinking about this for a bit... I wonder if I had done a back door ROTH. This would be a reason that I do not have a tIRA to match this too. Need to find that 2008.

It's pretty easy to figure out if you did a backdoor Roth conversion. Look at Part II on page 2 of the form 8606. If you see numbers there, then you did a conversion. If the balance on line 14 in Part I is $0, then you do not have a tIRA with a basis and you were just using 8606 to report the backdoor Roth.

Actually the software did not put one in for 2008... I did change from 2007, but it should have read that info...

No form 8606 was required in your 2008 return. You only need to file one if the numbers on it would have been different from the last time you filed it, and it sounds like you didn't do any transactions in 2008 that would have changed your basis, so no 8606 was generated.

The problem with switching back and forth between various tax programs is that some programs can only import a PDF version of your return instead of a data file, so anything that's carried in the background and is not on the actual return can't be read. Even if the software you used in 2008 correctly read the 2007 version of the 8606, if you then changed software again in any subsequent year after not filing an 8606, your data would likely have been lost then.

Going forward, assuming you do have a basis on line 14 of the 2007 form 8606, I would just print a copy of that 2-page form, and every year, move it into the current year's tax folder. You won't need the info again until you withdraw from the tIRA. Even if you believe that your current tIRA is entirely pre-tax money, the IRS believes something different; and it's too late now to correct their records, so at this point, you should act as if they have the correct data.