Unknown TIRA basis – no 8606s filed
A new client of mine has been making TIRA contributions since the 70’s. The early contributions in the 70’s and perhaps 80’s were likely deductible.
Starting in the 90’s taxpayer began participating in a thrift savings plan. Does participation in this plan make all TIRA contributions non-deductible?
Also starting in the 90’s taxpayer began earning more money which made at least a portion (or all) of TIRA contributions non-deductible.
Information available is extremely poor and to the best of my knowledge, there were no 8606 filed at all. I have no idea of what amounts were contributed to the TIRA and even if I did I have no idea if the amounts were deductible or actually deducted. Getting the information from the custodians is probably an impossibility as many of them do not exist or have merged into other banks.
What are the options here? I could request all of the previous tax returns, but I suspect that I will just find that the amounts were not deducted and no 8606 was filed, but I still will not know if a non-deductible contribution was made for that year.
Taxpayer says that maximum contributions were made in most years up until 2010. If contributions were made in all years, the basis would be 88,500 if all were non-deductible. I have all of the salary history for each year and could try to figure out which were non-deductible. The value of the TIRA is around 100k.
Taxpayer is 62 years old. Taxpayer does not need to take any distributions until required. The only thing which I can think of is to do an analysis on a best efforts basis and file all of the past 8606 and then convert the whole thing to a ROTH IRA, but I am not entirely comfortable with this approach.
Are there any other options other than just paying tax on 100% of the TIRA?
Permalink Submitted by Alan - IRA critic on Thu, 2014-01-16 15:49
There are no options other than to reconstruct the information. Did taxpayer do his own taxes? If not, the preparers may have some info, but only if he kept his returns so he knows who the prepares were in each year. In short, he needs to know IF a contribution was made (either tax return or form 5498), and if the contribution was deducted or 8606 filed (tax return or transcript thereof as custodians do not know about any deduction). Presently, the IRS is accepting retroactive 8606 forms without penalty, but not if the taxpayer overstates basis. Being covered by an employer plan including the TSP does not eliminate the deduction, it only activates the modified AGI limits, but taxpayer could be under those limits in any given year. Note that MAGI determines the deduction amount, not just salary so the tax return itself is needed to determine MAGI. First year that non deductible contributions were possible was 1987.
Permalink Submitted by David Powers on Thu, 2014-01-16 21:40
Taxpayer did their own returns.Assuming I can determine the amount of contributions from the various custodians Is it possible to get all of the past tax return transcripts from the IRS at $50 a pop? Going back to 1975 might get pricey, but as you said, there are no other options.
Permalink Submitted by mk foss on Fri, 2014-01-17 00:49
Nondeductible contributions were first allowed in 1987 – so you don’t have to go back further than that. The custodians don’t track whether a contribution was tax deductible or not so contacting them would only let you know the specific years contributions were made. Many individuals who make nondeductible contributions fail to file Form 8606 when required which makes your task more difficult.
Permalink Submitted by Alan - IRA critic on Fri, 2014-01-17 01:00
To approach this project, you may want to consider starting in 2002 when the contribution limits were first increased above 2,000 and the age 50 catch up was added. If you can get through that data development challenge, then you could try back to 1987 since contributions were limited to 2k from 1987 to 2001. See chart here: http://www.retirementdictionary.com/definitions/individualretirementaccountiraccount