Conversion Error
Client has $50k basis in TIRA in 2013. Has $80k taxable for a total of $130k. This is what happened in the order it happened –
In 2014, client made non-deductible contribution of $2k
In 2014, client converted $50k of basis to Roth IRA.
In 2014, client transferred the remainder of the IRA ($80k + $2k) to 401k to isolate basis.
In 2015, client rolled the 401k back to a TIRA.
2 issues come to mind – a 401k cannot receive after-tax transfers, but apparently it did.
The $2k non-deductible contribution should have added to the basis and should have been converted but wasn’t.
How to fix this? -m
Permalink Submitted by Alan - IRA critic on Mon, 2015-03-16 16:13
I am not sure what corrective measures the plan would have to take other than distributing 2k back to client, but before contacting the plan the client should check to see if 2k of any non deductible TIRA contribution made for 2011 through the 2014 contribution were eligible for deduction, then amend the most recent return where this is possible to show a deduction and reduced basis of 2k on Form 8606. Then the conversion would have exhausted the basis. Or adding a 2014 deductible contribution of 2k would be an even easier way to fix things, but client was probably not eligible to deduct a TIRA contribution in any of those years. Not qualifying to do any of these retroactive fixes, he would have to contact the plan and take his medicine, but not sure what all that would entail.