Permalink Submitted by Alan - IRA critic on Fri, 2017-03-17 16:06
Not sure how you define a failed conversion. A failed conversion used to occur when you converted when you were not eligible to convert because your income was too high. Income is no longer an issue, so a failed conversion now is limited to re converting too soon after a recharacterized conversion. In this case, the custodian may or may not have a warning system included in their order system. If the reconversion still occurs, the IRS would would detect very few using 1099R and 5498 matching, but would be more likely to catch the failed conversion after doing an audit.
Permalink Submitted by John Wright on Fri, 2017-03-17 17:22
Thanks for the response. Let me expand on the matter. 2008 opened TIRA non deductible with $2K 8606.2009 converted the $812. remaining after losses to Roth and 8606 $1128 basis. After this, in 2009 rolled over 401k to TIRA and did not convert or report. no IRS contact at all.No additional Roth or TIRA activity till 2014 when $6500 non deductible to TIRA. 8606 $7628 basis.2015 converted TIRA $6500 and rollover IRA to Roth. 8606 completed and tax paid on the rollover conversion.No contact from IRS or custodian regarding any of these transactions to this date.Should we, or do we need to, correct anything with these conversions or are we in the clear?
Permalink Submitted by Alan - IRA critic on Fri, 2017-03-17 17:47
So the violation is that modified AGI was too high to be eligible for the 2009 conversion? That’s the only possible error I see here and it is only a conversion of 812. And if it that is the only error, after 8 years I would just forget it. But if you will sleep better, I can outline the steps you would have to take to fix it now. Technically, a failed conversion is an excess regular Roth contribution and there is no statute of limitations for excess contributions, so in theory the IRS could hit you with a 6% excise for each year the excess remains in the Roth. They could, but even if they noticed the error now, there is no evidence they are going back several years to assess excise taxes. By the time the 2009 conversion was done the law had already been changed effective in 2010 to eliminate the income limits for conversions as Congress wanted the quick tax revenue from conversion taxes.
Permalink Submitted by John Wright on Fri, 2017-03-17 18:02
No, my AGI was not above the limit in that year. I am concerned that we did convert and pro rate taxes on the 401k rollover in addition to the 812 on the original conversion in 2009. If the 812 is an excess contribution are all the other conversions since then subject to the 6% or just the 812? Just worried we could lose the Roth IRA if we don’t adhere strictly to regs. Again, thanks so much for the response.
Permalink Submitted by Alan - IRA critic on Fri, 2017-03-17 18:18
If your MAGI was not too high to convert in 2009, there is no excess contribution. While you underpaid your taxes on the 2009 conversion because of the 401k rollover, the statute of limitations for that is long since closed so nothing to be concerned with now.
Permalink Submitted by Alan - IRA critic on Fri, 2017-03-17 18:52
Yes, the 5 year Roth holding period does not start with an excess contribution or failed conversion. However, your conversion was not a failed conversion, you just paid less tax on it because Form 8606 was not completed correctly. Your 5 year holding period still started in 2009 and has been completed. However, your Roth is not fully qualifed until you also reach 59.5.
Permalink Submitted by John Wright on Sat, 2017-03-18 15:43
I was concerned the fact that I failed to report the deductible rollover TIRA would have bearing on the non deductible conversion and therefore negate it and class it is a failed conversion. Apparently I dodged one and it was purely an oversight. Again thanks very much for taking time to explain this to me.
Permalink Submitted by Alan - IRA critic on Fri, 2017-03-17 16:06
Not sure how you define a failed conversion. A failed conversion used to occur when you converted when you were not eligible to convert because your income was too high. Income is no longer an issue, so a failed conversion now is limited to re converting too soon after a recharacterized conversion. In this case, the custodian may or may not have a warning system included in their order system. If the reconversion still occurs, the IRS would would detect very few using 1099R and 5498 matching, but would be more likely to catch the failed conversion after doing an audit.
Permalink Submitted by John Wright on Fri, 2017-03-17 17:22
Thanks for the response. Let me expand on the matter. 2008 opened TIRA non deductible with $2K 8606.2009 converted the $812. remaining after losses to Roth and 8606 $1128 basis. After this, in 2009 rolled over 401k to TIRA and did not convert or report. no IRS contact at all.No additional Roth or TIRA activity till 2014 when $6500 non deductible to TIRA. 8606 $7628 basis.2015 converted TIRA $6500 and rollover IRA to Roth. 8606 completed and tax paid on the rollover conversion.No contact from IRS or custodian regarding any of these transactions to this date.Should we, or do we need to, correct anything with these conversions or are we in the clear?
Permalink Submitted by Alan - IRA critic on Fri, 2017-03-17 17:47
So the violation is that modified AGI was too high to be eligible for the 2009 conversion? That’s the only possible error I see here and it is only a conversion of 812. And if it that is the only error, after 8 years I would just forget it. But if you will sleep better, I can outline the steps you would have to take to fix it now. Technically, a failed conversion is an excess regular Roth contribution and there is no statute of limitations for excess contributions, so in theory the IRS could hit you with a 6% excise for each year the excess remains in the Roth. They could, but even if they noticed the error now, there is no evidence they are going back several years to assess excise taxes. By the time the 2009 conversion was done the law had already been changed effective in 2010 to eliminate the income limits for conversions as Congress wanted the quick tax revenue from conversion taxes.
Permalink Submitted by John Wright on Fri, 2017-03-17 18:02
No, my AGI was not above the limit in that year. I am concerned that we did convert and pro rate taxes on the 401k rollover in addition to the 812 on the original conversion in 2009. If the 812 is an excess contribution are all the other conversions since then subject to the 6% or just the 812? Just worried we could lose the Roth IRA if we don’t adhere strictly to regs. Again, thanks so much for the response.
Permalink Submitted by Alan - IRA critic on Fri, 2017-03-17 18:18
If your MAGI was not too high to convert in 2009, there is no excess contribution. While you underpaid your taxes on the 2009 conversion because of the 401k rollover, the statute of limitations for that is long since closed so nothing to be concerned with now.
Permalink Submitted by John Wright on Fri, 2017-03-17 18:26
Wow, so that means I have the five year requirement as well then.Thank you very much indeed.
Permalink Submitted by Alan - IRA critic on Fri, 2017-03-17 18:52
Yes, the 5 year Roth holding period does not start with an excess contribution or failed conversion. However, your conversion was not a failed conversion, you just paid less tax on it because Form 8606 was not completed correctly. Your 5 year holding period still started in 2009 and has been completed. However, your Roth is not fully qualifed until you also reach 59.5.
Permalink Submitted by John Wright on Sat, 2017-03-18 15:43
I was concerned the fact that I failed to report the deductible rollover TIRA would have bearing on the non deductible conversion and therefore negate it and class it is a failed conversion. Apparently I dodged one and it was purely an oversight. Again thanks very much for taking time to explain this to me.