After tax IRA conversion to ROTH IRA
I rolled my entire traditional IRA (pre-taxed) into my employee 401(K) account this year. I would now like to make an after tax contribution to my IRA then roll that into my ROTH IRA (I make too much to contribute to a ROTH). If I make the after tax IRA contribution for 2013, then roll it into the ROTH 2 days later, how do I handle tax paperwork for filing my taxes next year? Will I get a 1099 from my broker? Do I need to fill out an 8606? What if I wait until January of next year to make the transaction for 2013, will the paper trail be the same? I wanted to make the contribution for tax year 2012, but was worried about the paper trail for taxes. The 8606 asks for IRA balances as of the end of the year and since I had not rolled the $s into my 401k, the form seemed too convoluted to deal with this year. Thanks for the help.
Pete
Permalink Submitted by Alan - IRA critic on Fri, 2013-03-15 20:36
You can make your non deductible TIRA contribution for 2013 and convert it right away to your Roth IRA tax free. You would report the non deductible contribution on Part I of Form 8606 and the conversion in Parts I and II. If you have not yet contributed for 2012 you could make that contribution up to 4/15 as well and convert both of them at the same time as a 2013 conversion. The only difference doing that is that you would report your 2012 non deductible contribution on a 2012 8606. The important thing is that you no longer have a pre tax TIRA balance to pro rate in 2013 and afterward due to rolling it to your 401k.
Permalink Submitted by Pete Holzgang on Fri, 2013-03-15 20:56
Thanks for your reply. I find the 8606 form to be rather confusing. Since I already e-filed for 2012. Can I just fill out the 8606 and sign it and send it in if I should decide to do the transaction for tax year 2012? Will my broker send me a 1099 or all I need to do is the 8606 period. Seems like a lot of work for get this accomplished. Thank you.
Pete
Permalink Submitted by Alan - IRA critic on Fri, 2013-03-15 21:07
You can still make the 2012 contribution up to 4/15 even though you filed. You could then complete a stand along 8606 for 2012 and send it in after 4/15 reporting the non deductible contribution on line 1. That is all you have to do. You will get a 5498 in May showing your 2012 contribution. A 1099R is only issued when there is a distribution, but you will get one next January for your 2013 conversion. It will add together all your conversions from each IRA account you have, so if you make the 2012 contribution and convert it, your 2013 1099R will just show a combined higher total than if you just made the 2013 contribution. Sending in the 8606 is very little work. You already did the harder part when your rolled your pre tax TIRA balance into your 401k plan, so to take advantage of that you should make a 2012 contribution if you have the money. If you only have enough for one year’s contribution, make it for 2012 since you will have another 12 months to come up with the money for your 2013 contribution.
Permalink Submitted by Pete Holzgang on Sun, 2013-03-17 01:28
Thanks for your timely and thorough explanation.