Form 8606 Question

Submitted by Bruce Glickman on Wed, 2012-03-14 19:39

Based on previous conversation I think am going to fill out Part II of Form 8606 even though all contributions converted to a Roth were fully deductible.

My queston is for Part II line 16. Do I also include the amount converted from a Rollover IRA? The form says Traditional, SEP or Simple IRAs to Roth.

If I don’t include the Rollover IRA, 1040 line 15b will be larger than what is reported on Form 8606. Of course there is a 1099-R for the Rollover IRA-> Roth amount.

1040 Line 15b 10000
Traditional IRA Roth conversion 4000
Rollover IRA Roth conversion 6000

Do I report full 10000 on Form 8606 Part II Line 16 or just 4000?

Thanks.



Submitted by Alan Spross on Wed, 2012-03-14 20:06

All conversions should be reported on Part II of Form 8606, but Part I only needs to be completed in certain situations.

The full conversion amount goes on line 16. A rollover IRA can be either a traditional IRA or a Roth IRA, as this term only describes such an IRA that was funded by a rollover from a non IRA employer plan. In most cases a rollover IRA is a traditional IRA. The old term for it was a conduit IRA. So include any Roth conversion that originated from another IRA type, but not a direct rollover to a Roth IRA from an employer plan when the funds did not go through a TIRA before reaching the Roth IRA.

In summary, report the 10,000 on line 16 and 18, and the line 18 amount flows over to 15b on Form 1040. It should also show on 15a.



Submitted by Bruce Glickman on Wed, 2012-03-14 20:13

Thanks alan.

As we discussed a while ago I’ve never filled out Form 8606 because all my Roth conversions in past years have been with fully deductible contributions. Since I pay tax on everything converted the IRS probably has not cared. But this year I think I will fill out 8606. I hope it doesn’t hurt me somehow.



Submitted by Alan Spross on Wed, 2012-03-14 22:40

It is impossible to predict how not filling out an 8606 for a conversion would affect what the IRS does. They are getting their tax dollars, and they are also getting a 5498 form from the Roth custodian showing receipt of the conversion. More than likely, you will not hear from them, but be sure to keep your copy of the 5498 in the event you do. You might also want to keep a copy of the Roth IRA statement that showed the conversion date.

One possibility would be the IRS thinks you just cashed out the TIRA distribution and if you are under 59.5, you would owe the 10% penalty if the 1099R is not coded 2 in Box 7. The 8606 eliminates that since a conversion is not subject to penalty. Another possible issue is if you take a Roth withdrawal of the conversion money, the IRS would ask for a penalty if they are do not have good computer matching of the 5498 showing the year of each conversion and thinks you may not have held the conversion 5 years. While these may not happen, and you could successfully respond if they did, there is no benefit in inviting correspondence from the IRS.



Submitted by Bruce Glickman on Mon, 2012-03-19 14:52

We previously talked about how to handle my recharacterization but I am still a bit confused.

I made a $5000 contribution to a Roth IRA. Recharacterized to traditional when the value was say $4800. I then converted it back to a Roth when the value was $4700.

Since I am able to fully deduct a TIRA contribution on 1040 line 32 I can put $5000 for IRA deduction because as we discussed that was the amount I originally contributed. On 1040 line 15b I put $4700 since that was the amount converted to a Roth and therefore taxable. Where does the $4800 come in?



Submitted by Alan Spross on Mon, 2012-03-19 16:04

The $4800 will show on the 1099R that reports the recharacterization since that is the amount that transferred to the TIRA. The TIRA custodian will issue a 5498 showing $4800 received. This should also be included with your explanatory statement with the tax return for the year of the original contribution that explains the amount of the original contribution and the date and amount (5,000) of the recharacterization to a TIRA and the value of the 5,000 when transferred (4800).

And your IRA deduction is 5000 as you stated.



Submitted by Bruce Glickman on Mon, 2012-03-19 22:56

Thanks. AFAICT Free Fillable Forms have no way to make notations. Hopefully they will figure it out. If not I expect I will receive a letter down the road.



Submitted by Alan Spross on Mon, 2012-03-19 23:15

You can enter an explanatory statement in the box to the left of line 15 of the 1040. The length is limited so you will have to abbreviate somewhat. I tried this myself for a recharacterized conversion statement, figured I had nothing to lose. But I also did the full round trip in 2011 so the IRS will have the 1099R and 5498 in their possession by the time the return is computer matched.

My impression is that the IRS still does not read these explanations in some cases, but cannot tell what % of the time that is. Anyway, if they do send you an inquiry, no big issue, just be sure to respond to it.



Submitted by Bruce Glickman on Thu, 2012-03-22 14:45

I wasn’t able to figure out where to put comments until after I submitted my efile.

Interestingly I noticed that both Forms 8606 (myself and spouse) although listed in “My Tax Forms” in Free Fillable Forms don’t appear when I try to print/save my return. I can save/print them if I go to the individual form. So am I wondering if these were actually submitted?

I emailed the IRS and then decided to call the 800 number they say I should try for a “more immediate response”. After going through the prompt and being told all calls are answered in the order received I am eventually told “my call could not be completed, please hang up and call the toll free number again”. This has happened a dozen times.

It’s 26 days until the tax deadline and I get disconnected. I’m not wasting any more time. Let them figure it out.



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