TIRA basis after Roth Conversion of cash and securities
Scenario 1: Individual makes non-deductible contribution to a TIRA and invests the majority of the money in stocks. Stocks lose value and ALL assets in TIRA are converted to a Roth IRA (5,000 ND contribution / 4,900 conversion of stock and cash). Is the TIRA basis carried forward to the next year 100 (line 14 on 8606) or is there a loss that’s realized as unrecovered basis and passed through as an itemized deduction? What goes on line 14 of the Form 8606 and therefore carried forward to the following year?
Scenario 2: Individual makes non-deductible contribution to a TIRA and 4900 is converted to a Roth IRA (5,000 ND contribution / 4,900 conversion of cash). Cash is converted and was not invested in stocks. Is the TIRA basis carried forward to the next year 100 (line 14 on 8606)?
Permalink Submitted by Alan - IRA critic on Thu, 2014-01-09 21:09
Permalink Submitted by unknown on Thu, 2014-01-09 21:39
Is closing the account an important factor? What if the account is left open, but all of the assets are converted leaving a zero balance in the account?
Permalink Submitted by Alan - IRA critic on Thu, 2014-01-09 22:11
That is OK – the key if you want to use the itemized deduction is that on any Form 5498 issued by the IRA custodian there is no value shown for the year end fair market value. The IRS has also not stated how long the value must remain at 0 for the deduction. You can probably make another contribution anytime in the following year and start over. Just do not make a new contribution before year end or the 5498 will show you still have a value and that might invite problems.