Backdoor Roth

[USMCAG]

I received some bad advise from a financial advisor on how to convert from a traditional to a Roth IRA. I understand the process now. Specifically, the part I failed to do was to transfer all of my traditional ira funds (deductible and non deductible) to a company 401k first. The advise I received was make a non deductible contribution to a traditional ira and then convert to a Roth without tax consequences. But because I still have funds in the traditional ira, I have to pay taxes on the prorated amount. So the question to those familiar with this situation, how can I correct the past. Can I do anything that will allow me not to have to pay taxes on the prorated amount since I have already done the conversion?

 

[pjigar]

Check if you can re-characterize.

 

[bingybear]

Check if you can re-characterize.

+1
It could be worse, you could have roth converted the entire TIRA. I hope you have documentation of the tax basis of all your TIRAs.
When did you do the conversion and for what tax year did you declare the TIRA contribution?

 

[USMCAG]

Thanks. What’s the best resource to determine if I qualify to re characterize?

 

[pjm-7]

See IRS publication 590 for IRA rules.

 

[bingybear]

Thanks. What’s the best resource to determine if I qualify to re characterize?

from link

The process of reversing a Roth IRA conversion is known as recharacterization. It needs to be completed by the last date, including extensions, for filing or refiling prior-year tax return, which is typically on or about October 15. All or a portion of what was converted can generally be recharacterized. And assets that are recharacterized to a traditional IRA can be reconverted to a Roth IRA in the next tax year after the conversion or 30 days after the recharacterization, whichever is later.

Back to my previous question.. when did you do the conversion and what tax year did you indicate it was for? Part of the year you can choose which year contributions (and I assume conversions) are assigned.

 

[USMCAG]

The when I think is the problem. I’ve done it for the last 3 filing years. My cpa didn’t catch it (he’s fired now) and the advise from my financial advisor was bogus.

It sounds like it may be too late. Since we are post Oct 15 th.

from link



Back to my previous question.. when did you do the conversion and what tax year did you indicate it was for? Part of the year you can choose which year contributions (and I assume conversions) are assigned.

 

[kaneohe]

................ Specifically, the part I failed to do was to transfer all of my traditional ira funds (deductible and non deductible) to a company 401k first. ............................

You can NOT transfer NON-deductible funds to company 401K. If they agree,
you could transfer the deductible part . If you can do that (are your 8606s accurate and up to date), for the future it would be best to move that deductible part to 401K.....it might take some time so start soon ......might take a month or more.

 

[USMCAG]

Would my financial advisor or the brokerage service know the break down of deductible vs non deductible ira contributions? I suspect they would not but if I have not kept up with it, then my assumption is there is no record. This is a last ditch effort on my part to fix this. I do plan to ask my FA but wanted to get the forums input.

 

[cathy63]

Would my financial advisor or the brokerage service know the break down of deductible vs non deductible ira contributions? I suspect they would not but if I have not kept up with it, then my assumption is there is no record. This is a last ditch effort on my part to fix this. I do plan to ask my FA but wanted to get the forums input.

Your broker does not know whether any specific contribution you made to a tIRA was deducted on your tax return or not. However, they did give you a form 5498 for every year that you made a contribution, and those old forms may be available online or they may be stored with your past tax returns. You were also supposed to file form 8606 with your taxes in every year when you made a non-deductible contribution.

If you did file form 8606, then you just need to refer to your tax return for the last year that you made a non-deductible contribution and your basis will be there.

If you did not file form 8606, then you should get your past 5498s from the broker or your tax files and file an 8606 now.