Wrong IRA Conversion -Old 8909 filing

Submitted by Abhi T on Mon, 2021-04-26 16:26

Hi,
I need an advice on how to file form 8909 for IRA conversion. To simplify here is the time line of my mistake.
2015 – Vanguard IRA contribution of $5500 eligible and deductible (no work 401k and contri. made in early 2016)
2019 – Vanguard TRAD IRA non deductible contribution of 6000 (April 2, 2020)
2020 – Vanguard TRAD IRA non deductible contribution of 6000 (April 2, 2020)
2020 – distribution to ROTH IRA 21087.75 without using recharacterization
Vanguard issued 1099-R with cost basis as 21087.75. Please do let me know how can I correct these and show correct cost basis to avoid double taxation.

A



Submitted by Alan - IRA critic on Mon, 2021-04-26 17:05

The form # is 8606.  You must file a 2019 8606 to report the 6000 ND contribution. If you didn’t, you can send in the form by itself. Note the signature line, and this form only applies to you if you file jointly. It should show your SSN.
With your 2020 return your 8606 will update your IRA basis. Show the new 6000 contribution on line 1 and the 6000 you carried over from 2019 on line 2. Your total basis is 12,000 on line 3. Complete the rest of Part I and II to report the conversion. The end result is that 9,088 of the conversion is taxable and 12,000 is not. 
Above assumes you converted all of your TIRA balance and you do not have any other non Roth IRAs.
VG does not know your IRA basis and is required to report your entire conversion as taxable in Box 2a of Form 1099R. However, your 8606 will override the Box 2a amount and you will only be taxed on 9,088.

Submitted by Abhi T on Tue, 2021-04-27 14:37

Thank You Alan for explaining. I still do not usnderstand what to do with year 2015 amount. Do I need to file separate 8606 for 2015 version or 8606 is only for ND contribution.    Also why do I have $9088  as taxable. Isn’t only $3588 should be taxable? ($21088 – $12000- $5500 = $3588)

Submitted by Alan - IRA critic on Tue, 2021-04-27 15:08

The 8606 does not report deductible contributions, so you would not file one for the 2015 deducted contribution. Only your 12,000 of non deductible contributions in a total distribution will be non taxable.

Submitted by Abhi T on Mon, 2021-05-10 19:55

Hi Alan, Thank you again for clarification. Do I also need to report/enter SEP IRA amount in line 6? This Sep IRA was started at end of year 2020 and was contributed through Employer match (full $5000 using my corp.). Once I enter this amount,  total taxable changes from $9088 to $11388. Is this correct even though SEP-IRA is still not converted/rolled over to Roth? 

Submitted by Alan - IRA critic on Mon, 2021-05-10 20:18

Yes, you must include any SEP IRA or SIMPLE IRA balance on line 6. And a SEP balance will increase the taxable portion of any conversion done.  

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