IRA Tax Reporting Questions

[joesxm3]

I have four retirement accounts, all with the same custodian: SEP IRA, Traditional IRA, ROTH IRA and 401K from previous employer.

I have previously made non-deductible contributions into the Traditional IRA.

In 2018 I did a ROTH conversion from Traditional IRA into ROTH IRA, but in 2019 and 2020 did not do a conversion or any other IRA activity.

Q1 - I thought that I needed to file form 8606 every year to document my "total basis in traditional IRAs", but Turbo Tax did not make this form for 2019 or 2020 even though I thought I forced it in 2020. Reading the form, it seems that it is not necessary to file the form unless I made a non-deductible contribution in that year or had a distribution or conversion. Does that seem right?

Q2 - Form 8606 seems to lump my SEP IRA and Traditional IRA together and consider my basis as applying to the total. Am I reading this correctly?

Q3 - I am thinking of doing a ROTH conversion this year by moving some shares of stock from the SEP IRA to the ROTH IRA. When I do that will they calculate the value of the shares at the time of the move and that will be the amount of my conversion? Form 8606 seems like it will apply my basis to this conversion even though the stocks came from SEP IRA and the non-deductible contributions were made to traditional IRA?

Q4 - Form 8606 does not seem to track my 401K. If I roll-over the 401K into a traditional IRA, my line 6 total value of all traditional, SEP and simple IRAs will get a big jump. Is there any tax form that I need to file to document the roll-over, other than including the new IRA in my 2022 form 8606?

Thanks.

Joe

 

[Gotadimple]

I have four retirement accounts, all with the same custodian: SEP IRA, Traditional IRA, ROTH IRA and 401K from previous employer.

I have previously made non-deductible contributions into the Traditional IRA.

In 2018 I did a ROTH conversion from Traditional IRA into ROTH IRA, but in 2019 and 2020 did not do a conversion or any other IRA activity.

Q1 - I thought that I needed to file form 8606 every year to document my "total basis in traditional IRAs", but Turbo Tax did not make this form for 2019 or 2020 even though I thought I forced it in 2020. Reading the form, it seems that it is not necessary to file the form unless I made a non-deductible contribution in that year or had a distribution or conversion. Does that seem right?
That's the way I read the instructions for form 8606. See ira.gov and type 8606 in the search bar. Download the instruction booklet.

Q2 - Form 8606 seems to lump my SEP IRA and Traditional IRA together and consider my basis as applying to the total. Am I reading this correctly?
Yes that's correct. If you have several IRAs the total in the IRAs needs to be reported.

Q3 - I am thinking of doing a ROTH conversion this year by moving some shares of stock from the SEP IRA to the ROTH IRA. When I do that will they calculate the value of the shares at the time of the move and that will be the amount of my conversion? Form 8606 seems like it will apply my basis to this conversion even though the stocks came from SEP IRA and the non-deductible contributions were made to traditional IRA?
Generally, if the shares in your SEP are available in your Roth IRA, they can do an in kind movement and will value the shares at the time of the conversion. If that investment isn't available in a Roth, they will liquidate the number of shares you want to move, and report that value as the amount of the conversion.

"even though the stocks came from SEP IRA and the non-deductible contributions were made to traditional IRA?" Your basis in the non-deductible IRA doesn't change if you are converting a part of your SEP to the Roth IRA.

Q4 - Form 8606 does not seem to track my 401K. If I roll-over the 401K into a traditional IRA, my line 6 total value of all traditional, SEP and simple IRAs will get a big jump. Is there any tax form that I need to file to document the roll-over, other than including the new IRA in my 2022 form 8606?
Nope! If you use tax software you will be asked about rollovers so it can appropriately place the value on form 8606.

Download the form 8606 instructions, all your answers are there.

 

[oldtimer]

Q1 - I thought that I needed to file form
"even though the stocks came from SEP IRA and the non-deductible contributions were made to traditional IRA?" Your basis in the non-deductible IRA doesn't change if you are converting a part of your SEP to the Roth IRA.

Doesn't the IRS consider all non-Roth IRA accounts owned by the same individual as one large traditional IRA? Therefore the pro rata rule applies to the SEP IRA to Roth IRA conversion and is documented on Form 8606.

 

[joesxm3]

Doesn't the IRS consider all non-Roth IRA accounts owned by the same individual as one large traditional IRA? Therefore the pro rata rule applies to the SEP IRA to Roth IRA conversion and is documented on Form 8606.

That's the way it seems to me.

 

[Act2]

Sort of related: I have an inherited TIRA and a Roth IRA. I have another traditional IRA that is usually a zero balance account; I contribute a non-deductible contribution to the zero balance traditional IRA and then convert to my Roth account a couple days later.

As I am working on my 2021 taxes, I did not see anywhere to report the value of my Inherited TIRA balance, which is new to me in 2021 and from which I have not yet taken any distribution. (The prior owner took his 2021 RMD before his death.)

Is there somewhere I have to report or include the balance of the inherited TIRA?

 

[SecondCor521]

I have four retirement accounts, all with the same custodian: SEP IRA, Traditional IRA, ROTH IRA and 401K from previous employer.

I have previously made non-deductible contributions into the Traditional IRA.

In 2018 I did a ROTH conversion from Traditional IRA into ROTH IRA, but in 2019 and 2020 did not do a conversion or any other IRA activity.

Q1 - I thought that I needed to file form 8606 every year to document my "total basis in traditional IRAs", but Turbo Tax did not make this form for 2019 or 2020 even though I thought I forced it in 2020. Reading the form, it seems that it is not necessary to file the form unless I made a non-deductible contribution in that year or had a distribution or conversion. Does that seem right?

Q2 - Form 8606 seems to lump my SEP IRA and Traditional IRA together and consider my basis as applying to the total. Am I reading this correctly?

Q3 - I am thinking of doing a ROTH conversion this year by moving some shares of stock from the SEP IRA to the ROTH IRA. When I do that will they calculate the value of the shares at the time of the move and that will be the amount of my conversion? Form 8606 seems like it will apply my basis to this conversion even though the stocks came from SEP IRA and the non-deductible contributions were made to traditional IRA?

Q4 - Form 8606 does not seem to track my 401K. If I roll-over the 401K into a traditional IRA, my line 6 total value of all traditional, SEP and simple IRAs will get a big jump. Is there any tax form that I need to file to document the roll-over, other than including the new IRA in my 2022 form 8606?

Thanks.

Joe

Q1 - I believe you are correct, that the 8606 is only filed in years in which you have activity. As an aside, though, you should save your most recent 8606 for the next year where you *do* have reportable activity, because stuff like basis carries forward.

Q2 - Yes, for Form 8606 part I, it includes SEP, SIMPLE, and traditional IRAs.

Q3a - Yes.

Q3b - Yes. For purposes of basis and pro-rata calculations, the IRS lumps all those IRAs mentioned in Q2 into one giant, virtual IRA. It doesn't matter which accounts you do stuff with, the IRS and Form 8606 lumps them all together. This will mean that a pro-rata portion of your SEP to Roth conversion will be non-taxable because of your IRA basis.

Q4 - In the year of the rollover, the rollover itself might need to be reported on line 4a and line 4b. If it's a non-taxable rollover, I think the amount rolled over usually goes on 4a, and a zero would be on 4b, and the word "ROLLOVER" should be printed on that line. But if there is other IRA activity (say, an inherited IRA distribution or something), that will all get combined on 4a/4b. Check the instructions for that line, I might not have it exactly right.

And then yes, you'll likely need to include the increased traditional IRA balance as part of your total on line 6 of Form 8606. Follow the instructions for that line. This will impact the pro-rata numbers around lines 10 through 13.

 

[SecondCor521]

Sort of related: I have an inherited TIRA and a Roth IRA. I have another traditional IRA that is usually a zero balance account; I contribute a non-deductible contribution to the zero balance traditional IRA and then convert to my Roth account a couple days later.

As I am working on my 2021 taxes, I did not see anywhere to report the value of my Inherited TIRA balance, which is new to me in 2021 and from which I have not yet taken any distribution. (The prior owner took his 2021 RMD before his death.)

Is there somewhere I have to report or include the balance of the inherited TIRA?

No.

You will need to make sure you comply with whatever distribution requirements there are on the inherited IRA(s) that apply to your situation - either the RMD requirements, the 10-year SECURE Act distribution period, or other rules in some less common scenarios.

When you do take a distribution from the inherited traditional IRA, that will be reported to you on a 1099-R and you should report the distribution on line 4a/4b of your tax return.

If the decedent had basis in the traditional IRA, that actually gets inherited, and would affect both how and where that stuff gets reported.

As an aside, I'm fairly sure that the value of the inherited IRAs are excluded from the backdoor Roth process, because they're not technically "yours" and therefore don't meet the requirement for inclusion in line 6 of the instructions. Logically this makes sense because you can't convert inherited traditional IRAs.

 

[Act2]

Thank you very much.

 

[gauss]

Q1) I agree that you are not required to file 8606 in years that you have no activity that would effect the basis. On the other hand it might be a good idea to file it every year if you can force your software to do it.

Our volunteer tax program began teaching us to fill out a new 8606 every year that the taxpayer has an 8606 in the prior years return. This way, we are less likely to loose track of the 8606s and the after tax basis that may be in the account.

-gauss