Non-deduct IRA gains to Solo 401(k)
Incorporated entity with 2 ees, husband & wife. Both have IRA’s funded with non-deductible contrib., example: $250,000 balance, $10,000 basis. Can gains in IRA’s be rolled to Solo 401(k) and then convert basis in IRAs to Roth IRAs in 2010?
Permalink Submitted by Alan Spross on Mon, 2008-12-01 21:08
If the solo K plan document allows incoming IRA rollovers, this can be done. The pre tax amount of 240,000 could be rolled to the plan and the remaining basis of 10,000 could be converted to a Roth IRA after 2009 or sooner if income limits permit. The 8606 needs to have been properly filed to report the basis in order for any conversion to be tax free.
Permalink Submitted by mk foss on Mon, 2008-12-01 22:09
Form 8606 is required every year that you make a nondeductible IRA contribution or withdraw funds from an IRA that contains nondeductible contributions. There is a penalty for not filing the form.
If you realize after the fact that Forms 8606 were not filed on a timely basis, the taxpayer should file them late and ask that the penalty be waived. They may need to use the current version of the form and cross out the date to be sure a form is filed for each year it’s required.
Form 8606 is a “stand alone” form and can be filed separately or attached to an amended return. In any case, if you’re filing late attach a letter requesting that the penalty be waived and give a reason (like you were not aware of the requirement previously).