current year non-taxable roth conversion
Taxpayer converts $5,600 deductible traditional to Roth in 2016. Taxpayer contributes $5,500 to traditional non-deductible IRA in 2016.
Taxpayer receives 1099 for $5,600.
Can taxpayer use $5,500 basis to offset $5,600 1099 and pay tax on just $100.
Permalink Submitted by Alan - IRA critic on Tue, 2017-03-21 17:40
Yes, if taxpayer has no other TIRA accounts and simply converted the 5500 non deductible contribution plus 100 in gains. The 1099R box 2a amount means nothing because the issuer must show the same amount in 2a as in Box 1. Form 8606 is used to both report the non deductible contribution and calculate ACTUAL the taxable amount of the conversion. If completed correctly, the taxable amount will only be 100.
Permalink Submitted by [email protected] on Tue, 2017-03-21 18:32
perhaps a misunderstanding here? It appears to me that the taxpayer has $5,600 existing TIRA that was funded previously with deductible contribution, now worth $5,600. This is what was converted. After the conversion, taxpayer made a non-deductible contribution to TIRA of another $5,500. This would mean the basis was approximately 50% and so, the conversion would suffer approximately a 50% tax liability. Is this not correct? -m
Permalink Submitted by Alan - IRA critic on Tue, 2017-03-21 20:00
Yes, this might be the case making the conversion just over 50% taxable. There are no deductible or non deductible IRA accounts, just deductible or non deductible contributions. A 5500 basis applies to both accounts and any others if more than one. A proper 8606 will calculate the actual taxable amount as if there was only one combined IRA account.