Form 8606 for Inherited tIRA rolled to spousal tIRA and converted to Roth

Submitted by Rick Mollern on Wed, 2022-10-05 06:04

I am trying to confirm if a Form 8606 has been filled out correctly by a CPA.

Decedent passed away with a tIRA in 2021. The surviving spouse rolled this over into their own tIRA in 2021, and then within a day or two converted 100% of it into a Roth IRA also in 2021 (since the decedent has sufficient tax losses to wipe out the income from conversion).

The custodian did not issue any tax form for the spousal rollover, indicating one was not needed as it was a rollover and not a distribution and thus not a taxable event. For the Roth conversion, a 1099-R was received.

Part I, Item 6 of Form 8606 asks for the value of any tIRA plus any outstanding rollovers as of end of year. The accountant has input here item 5 of the 1099 (FMV of account). However, the amount from item 5 of the 1099 seems to be the value of the account as of the end of the year, even though that is subsequent to the Roth conversion, which is confusing.

Part I, Item 8 of the Form 8606 correctly lists the Roth conversion amount from the 1099.

Reading the lead-in parapraph to Part I, I am wondering if Part I should even be filled out, as it seems like it does not apply to this situation. Neither spouse had any other IRA or IRA-related transaction other than as described above.

Feeling very confused and would greatly appreciate any input or guidance.

Thank you.

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Permalink Submitted by David Mertz on Wed, 2022-10-05 14:20

The custodian issued no Form 1099-R for the movement of the inherited tIRA to the spouse’s tIRA because it was done by trustee-to-trustee transfer, not by rollover.
Assuming that this IRA is the spouse’s only tIRA, the FMV from box 5 the Form 5498 would be the correct amount to put on line 6 of Form 8606 if Part 1 is needed.
Part I is needed only if either spouse had basis in nondeductible tIRA contributions. If there was nothing on line 1 or line 2, Part I should have been left blank but it doesn’t hurt anything to have lines 6 and 8 populated because the result on line 11 (and therefore line 17 of Part II) would be zero. With no basis, the entire Roth conversion is taxable and the entire conversion will be shown on Part II line 18 as taxable.