Basis in TIRA and Roths

Submitted by Deena Wagner on Sat, 2013-04-13 01:19

couple of questions/clarifications on basis in IRA plans.

When I was employed, my employer had a 401K plan that consisted of pre-tax contributions and matching funds for the first xx amount of contributions. When my contributions reached the maximum amount allowed for the year, my employer automatically placed my additional contributions into a post tax savings account.
1. Did the matching funds create any basis in this account?

When I retired I rolled over just the funds in the 401K to an TIRA account. The funds in the savings account was placed in a separate account. I later converted some of the TIRA funds to Roth IRAs and paid the taxes.
2. Is there any basis in my Roth IRAs.

I use turbo tax to my taxes and it keeps asking for basis. I don’t beleive I have any, but need to be sure before I get myself in trouble. Thanks for your help.



Submitted by Alan - IRA critic on Sat, 2013-04-13 02:25

  1. You had basis in your 401k from the after tax contributions. The amount should have shown on your statements from the plan.  If you rolled over the entire balance of your 401k including the after tax contributions, you added basis to your IRA that should be reported on Form 8606, line 2. When you convert from your TIRA to your Roth IRA, a pro rated amount of the conversion (or any other distribution you might take) is non taxable and this is calculated on Form 8606 which you use to report conversions. As long as you can document that your TIRA acquired basis, you can complete the 8606. If your conversion was done in 2009 or later, there is still time to amend your tax return to show your basis on the 8606 and receive a refund due to some of your conversion being non taxable. The 8606 that first shows the after tax basis on line 2 is the next 8606 you otherwise would have to file after the 401k rollover. It might be the year you converted.
  2. For your Roth IRA, basis is simply the amount you contributed by either regular or conversion contributions. When you take distributions up to the amount of these contributions, they are tax free. After you have held your Roth 5 years and reach 59.5, your Roth is qualified and ALL distributions are tax free.


Submitted by Deena Wagner on Sat, 2013-04-13 16:48

Alan,Thanks for your quick reply.  I would like to clarify my one statement.  Each year when my contribution to my 401K reached my allowable pre-tax contribution, my employer automatically placed my contribution in a savings account AND WITHHELD INCOME TAXES.  These taxable amounts were shown as income for the year.  Given this additional clarification, does my TIRA have any basis?



Submitted by Alan - IRA critic on Sat, 2013-04-13 18:09

I am assuming that the “savings account” was actually  an after tax sub account within the 401k plan. If so, and if the after tax amount was rolled into your IRA along with the pre tax amount, your TIRA had basis which should be reported by you on Form 8606.



Submitted by Deena Wagner on Mon, 2013-04-15 13:38

Thanks again.  i will need to find the paperwork, or contact my broker.  I think they separated the taxable amount when they rolled it over. 



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