Prorata Rule
Hi,
1. I opened non deductible Traditional IRA ($5,000) in 2012 and did not know about filing 8606 until this year. Without knowing anything I rolled this money to Roth ($5,400) in Feb 9th, 2016.
2.I had approx $11,000 in 401K from previous company and rolled over to Traditional IRA (separate account than
above) in Feb 1, 2016.
3. Did I do something wrong here by only rolling over my $5000 (grown to $5400) in terms of tax
consequences? Does Pro-rata rule applies to me? What will be my taxable income? What is the best way to correct it back?
4. Can I file form 8606 this year for #1 above with my tax return.
I would appreciate your help on this.
Permalink Submitted by Alan - IRA critic on Sat, 2016-04-02 17:37
You need to file a 2012 edition of Form 8606 reporting that non deductible contribution. Send it in separately from your return and wait until May 1st. I assume that you have not taken any other IRA distributions before 2016. If these accounts are your ONLY non Roth IRA accounts you will then have 5,000 in IRA basis coming into 2016. Due to the 11,000 401k rollover and your conversion, the Form 8606 you will file for 2016 will calculate that roughly 70% of your conversion (3,780) will be taxable under the pro rate rules. If you want to undo the conversion, you have until 10/15 to do so, but if you are sure that you do not want to keep the conversion there is still time to recharacterize it and file your 2015 return to reflect that. But you will have to decide quickly.