Miscalculated Taxes on Roth Conversion
Hello,
I have been contributing about $5000 a year in a non-deductible IRA since 2010. I converted $20000 in 2014 from that Traditional(Non-deductible) IRA to Roth IRA. There was no appreciation in the account as I hadn’t invested it in any investments. I did the conversion without paying any taxes.
However, I didn’t realize that I had to use my Total IRA balance to compute the taxes and not only the non-deductible portion. I have about $60,000 in Traditional IRA from a previous employer 401K rollover.
My question is, what do I do now? How can I rectify the mistake? What happens if I don’t report it?
Please help.
Permalink Submitted by Alan - IRA critic on Sat, 2016-03-26 04:50
The IRS received the same 1099R you did and also the same 5498 in May, 2015, so if you do not report it they will eventually send you a bill plus penalty and interest. Until 10/15/2015 you could have simply recharacterized the conversion back to your TIRA and eliminated the tax bill, but that deadline has passed. Have you filed your 2014 return yet? Looks like you will end up with around 15,000 is additional taxable income based on your figures. If you cannot pay it, you might request an installment plan from the IRS.
Permalink Submitted by Ami Thakor on Sat, 2016-03-26 05:23
Can I file an ammended return and pay the taxes due now? It was an honest mistake and I would like to correct it now.
Permalink Submitted by Ami Thakor on Sat, 2016-03-26 05:25
Yes I did file my 2014 return last year for April 15th. Can I file an amended return 1040x and rectify the mistake
Permalink Submitted by Alan - IRA critic on Sun, 2016-03-27 00:03
Yes, you can file an amended return for 2014 on a 1040X, which would include Form 8606. Also be sure that you filed an 8606 to report all your prior non deductible contributions so your total basis showing on line 14 is correct whether that total is 20k or some other figure. The 8606 with your amended return depends on 8606 forms for years before 2014 being accurate. Note that after receiving the 1040X and your tax payment, the IRS may bill you late interest on the amount due since the tax should have been paid a year ago.