Filing form 5329 for prior years — backdoor Roth

Submitted by ssel on Mon, 2016-09-05 02:00

I’ve read suggestions to file form 5329 proactively after doing a backdoor Roth IRA contribution, even when no penalty is due, to start the timer on the statue of limitations. I figure that like chicken soup, it couldn’t hurt.

The relevant years are 2010 – 2015, all of which I’ve already filed (timely, and without form 5329}.

For the three most recent years I could amend each return with a 1040X showing no tax liability change, and include the 5329.

Question 1: For each year should I file a 1040X, or should I just mail in the 5329 on its own? The instructions for form 5329 are maddeningly silent on this question: it’s almost a logic puzzle. They say:

> If you do not have any other changes and have not previously filed
> a federal income tax return for the prior year, file the prior year’s
> version of Form 5329 by itself….
> [I did file previously, so this doesn’t apply to me.]

> If you have other changes, file Form 5329 for the prior year with Form 1040X….
> [I do not have other changes, so this doesn’t apply to me either.]

Question 2: Can I still file form 5329 for years 2010-2012, or is it too late? And if I can, with 1040X or without?

Thanks!



Submitted by Alan - IRA critic on Mon, 2016-09-05 03:00

  1. I fully agree with you about the confusing verbiage on the 5329 Inst. You can usually file them stand alone, but every once in awhile the IRS will kick it back and ask for a 1040X. I would file it stand alone, and only do the 1040X if they ask for one.
  2. I am not so sure this is a good idea. While you can still file a 5329 for prior years because there are no statute of limitations for excess contributions, you would not file a blank form. You would have to enter 0 on all the lines that 0 applies to in order to start the 3 year statute running. However, if you file a 5329 with a bunch of 0s on it, the IRS may well wonder why you are doing that and if they are wise enough to know that you want to initiate a statute period they may think you are hiding something and take a long look at your past returns to see if they missed something. While your 1040 may be closed for 2010 -2012, do you want the IRS re looking at your open 1040 forms for 2013-2016 which might include the entire return, not just the IRA portions.
  3. I suspect that your reason for considering the 5329 filing is that under the step transaction doctrine, it has been stated by a few tax attorneys that the IRS could in theory say you contribution was excess because were not eligible to make a regular Roth contribution, so you used the back door. If the IRS was going to do that, they would have done so by now, and what are the odds of YOUR back door being the one out of hundreds of thousands that the IRS selected? If this is your concern, I would think the odds are heavily in your favor.
  4. Remember that with a designated Roth now offered by most qualified plans, 18,000 can be contributed with no income limits at all. Makes the regular IRA contribution limit look pretty small.


Submitted by ssel on Mon, 2016-09-05 03:42

Thanks Alan!    I see your point about the closed returns and I’ll follow your advice.  You’re right about what motivated this, though in my case it also involves a larger “rollover conversion” from a post-tax 401(k).I’m curious why you’re not suggesting that filing all-zero 5329 forms even for open years is inviting similar scrutiny.  My 401(k) rollover conversion was in 2015, so should I file the form for that year only, or just leave well-enough alone?  On next year’s return, is it benign to file the all-zero form?



Submitted by Alan - IRA critic on Mon, 2016-09-05 04:21

  • I intended that all totally 0 5329 forms might draw extra scrutiny regardless of whether the tax year is otherwise closed or still open. Same for the current return.
  • If you are on extension and yet to file for 2015, and if you have any non zero 5329 entry for any of the 5329 sections, then you might enter 0s on the excess contribution portion. Of course, this would not be an all 0 5329 because you already had to file one for another reason. Otherwise, I would pass. Despite being well aware of what is transpiring with these back door conversions, the IRS has never challenged any of them to date. Even in cases where an IRA contribution is made with no earned income, you never see the IRS going back more than a couple years to bill excise taxes.


Submitted by ssel on Mon, 2016-09-05 05:59

Looks like I was starting to complicate things needlessly.  Thanks again for the detailed explanation.  No new forms for me.



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