1099 for Non-Deductible IRA
I put in place a back door Roth for a client of mine and i did it with a large well known mutual fund company. By moving from the NDIRA to the Roth it generated a 1099. The amount contributed to the NDIRA was $5500. The 1099 states in box 1 that the gross distribution was $5500 and in box 2a, it states that the taxable amount was $5500. Obviously the taxable amount should be $0. Is this standard practice among all IRA providers or is this 1099 incorrect?
Permalink Submitted by Alan - IRA critic on Fri, 2017-02-17 16:38
The 1099R is correct. Because an IRA custodian has no way of knowing the amount of basis anyone has in their TIRA account, the IRS requires the full amount of the distribution to be entered in Box 2a. The taxpayer then files Form 8606 that calculates the ACTUAL taxable amount. If done correctly and there was no other TIRA accounts holding pre tax dollars, then the conversion will be non taxable.
Permalink Submitted by Anthony Zalesky on Fri, 2017-02-17 18:59
Even if it is a non-deductible IRA? Under the heading of TIRA, do you include both deductible and non-deductible IRAs?
Permalink Submitted by Alan - IRA critic on Fri, 2017-02-17 19:06
Form 8606 pro rates all non Roth IRA balances in the calculation. That includes traditional, SEP, and SIMPLE IRAs. So called rollover IRAs are also traditional IRAs, but came from a qualified plan rollover. There are no deductible or non deductible accounts, only deductible or non deductible contributions. Since these balances are combined for all the above IRA accounts, it does not matter which account the contribution is made to or which account funds the distribution since they are all just one combined account for Form 8606 tax determination purposes. All non deductible contributions are reported on Form 8606 for the year made, and conversions are also reported on Form 8606. This form is never seen by an IRA custodian, just by the taxpayer and the IRS.