Roth rules

[kaneohe]

Quote:

Originally Posted by wallygator69 sorry I'm back. In 2011, 2012 and 2013 I did Roth conversions but my accountant say Turbotax did not require Form 8606 those years. He called and confirmed with Quicken that it wasn't. In 2014 I did a Roth conversion and that year Turbotax did an 8606. My EX accountant says an was adamant that after 5 years I can just take conversions out without issue. I have the data for conversion years and amounts. Should I just file the 8606's and send a letter stating that issue with Turbotax not doing the forms that year? Can I go back to 2011 and does it have the potential for opening a bag of worms? I really appreciate the vast knowledge and help by you folks. Merry Christmas, Wally

Can you tell that the Roth conversions were declared as income for the yrs that you did conversion? Seems like F8606 would/should have been generated if they were. Where on the 1040 was that income shown?

[gauss]

Quote:

Originally Posted by wallygator69 sorry I'm back. In 2011, 2012 and 2013 I did Roth conversions but my accountant say Turbotax did not require Form 8606 those years. He called and confirmed with Quicken that it wasn't. In 2014 I did a Roth conversion and that year Turbotax did an 8606. My EX accountant says an was adamant that after 5 years I can just take conversions out without issue. I have the data for conversion years and amounts. Should I just file the 8606's and send a letter stating that issue with Turbotax not doing the forms that year? Can I go back to 2011 and does it have the potential for opening a bag of worms? I really appreciate the vast knowledge and help by you folks. Merry Christmas, Wally

#1) If you read the instructions for From 8606, you will see that it is required by the IRS every year you perform a Roth conversion. If you do not have any after-tax basis in the funds being converted then the form may be trivially easy. Did you every tell us if you have any after-tax basis in the IRAs that you Roth converted or after-tax basis in any employer plan funds (ie 401k) that you rolled over to the Roth?

#2) Do you have the forms 1099-R and 5498 for all the years that you made Roth conversions? Having these available will be very useful in straightening this out. At a minimum you should be able to calculate to the total of all your Roth conversions and the year in which they occurred.
Copies of these can be requested from the IRS going back up to 10 years although you have to request each year separately. What you need is called a tax transcript (the Wage and Income Transcript variety is the one you need). All your W2s/1099s/5498s for the year will be included in the Wage and Income Tax Transcript. The IRS provides access to request these via this page.

#3) Do you need to take Roth withdrawals prior to age 59 1/2? If you don't, then you will not need to calculate and tracck your basis in your contributions and your conversions which F8606 is designed to track.

#4) This is the type of issue that I would ask about over at fairmark.com also.

-gauss

[sengsational]

Quote:

Originally Posted by wallygator69 In 2011, 2012 and 2013 I did Roth conversions but my accountant say Turbotax did not require Form 8606 those years. He called and confirmed with Quicken that it wasn't.

That doesn't sound quite right. If you need an 8606 to do your 2016 taxes, it would seem that you would have needed one in those earlier years too. So in those earlier years, you moved "$X" out of your tIRA, put that amount into a Roth, and on that year's tax line 15a and line 15b were both the same number? "$X"?

As far as I can tell, the whole point is to keep you from having to pay tax on tIRA funds that you've already paid tax on. So if you look back and you made IRA contributions that were not deductible (ie, you already paid tax on that money), the form has you calculate what percent that is, and you get to remove that percent without paying tax on it. That same amount gets removed from your basis, and that will go on a future 8606.

So if you did Roth conversions earlier, and your tIRA had non-deductible funds, you just temporarily ripped yourself off, slightly. I must add, I'm no accountant. In fact, it's my least favorite thing. But it seems to me (shooting from the hip), is that if your basis on the 8606 in 2014 was accurate (ie high enough), you're in pretty good shape; your latest (2014) 8606 is all you need to go forward. You can skip doing 8606's some years if you don't have conversions. You get your tIRA basis from your most recent past 8606 and put it on the top of the current year 8606. So the value on line 13 of your 2014 8606 will go on line 2 of your 2016 8606 (presuming no 8606 in 2015).

Now, if the basis on the 2014 was wrong, then that's kinda bad. The IRS will expect to see that number going down over time. So if you realize that your basis is higher than what was reported earlier, that's going to be a problem. But I don't think that's your issue.

You said there were conversions, but no 8606's, and I think all that means is that you could have gotten a fraction of the money out tax-free, but you gave up that rather smallish advantage. You can still get the money out tax-free, but it will just happen later.

[wallygator69]

Hi Folks,

Sorry for not responding but I am not at home and have limited internet access. Also do not have data at my finger tips...

I will be back home on the 28th and can provide details.

Thanks for the help as always.

Wally

[wallygator69]

UGH!

All Roth Conversions were from tIRA's and we paid the taxes on the conversions.

It appears I have no cost basis ever reported to the IRS for my IRA's. Line item 6 is blank where it says enter the value of ALL your traditional SEP and Simple IRA's as of Dec. 31, 2014. This was the first time 8606 came up as a form required by Turbotax per my old accountant. I have been doing conversions on and off since 2009 with 8606. My accountant had no idea what the balances are in any of our IRA's and never asked. Again, blames Turbotax......

Do you folks think I need to get with my new accountant quick?

Thanks,

Wally

Quote:

Originally Posted by sengsational Now, if the basis on the 2014 was wrong, then that's kinda bad. The IRS will expect to see that number going down over time. So if you realize that your basis is higher than what was reported earlier, that's going to be a problem. But I don't think that's your issue. You said there were conversions, but no 8606's, and I think all that means is that you could have gotten a fraction of the money out tax-free, but you gave up that rather smallish advantage. You can still get the money out tax-free, but it will just happen later.

[sengsational]

I'm not a very good rule-follower, so DON'T do what I'd do, LOL! But what I'd do is calculate the basis, and use the entire basis on this year's 8606. The years that you paid tax on 100% of what you pulled out, the basis wouldn't have changed, so the basis hasn't been reduced. You're not "trying to get away with something", you're simply trying to access money that you've already paid tax on. You might consider finding a tax attorney for an hour and get that one question answered, and maybe they'd word a letter for you that explains that the basis reported on this year's 8606 is the entire basis because in previous years' withdrawals tax was paid on 100% of the proceeds.

[Alan]

Quote:

Originally Posted by sengsational I'm not a very good rule-follower, so DON'T do what I'd do, LOL! But what I'd do is calculate the basis, and use the entire basis on this year's 8606. The years that you paid tax on 100% of what you pulled out, the basis wouldn't have changed, so the basis hasn't been reduced. You're not "trying to get away with something", you're simply trying to access money that you've already paid tax on. You might consider finding a tax attorney for an hour and get that one question answered, and maybe they'd word a letter for you that explains that the basis reported on this year's 8606 is the entire basis because in previous years' withdrawals tax was paid on 100% of the proceeds.

This sounds reasonable to me if the OP has proof of his tIRA basis (e.g. record of after-tax contributions). Even without withdrawals or conversions if after-tax contributions are made there should be an 8606 each year to track the increasing basis during the accumulation phase.