Pre-59.5 Roth distributions omitted from Form 8606 for closed year

Submitted by Bruce Steiner on Sun, 2019-05-05 23:51

Taxpayer made a nondeductible contribution and did a backdoor conversion in 2013 and filed a Form 8606 with her timely filed tax return to report them on Parts I and II.

She also took distributions from her Roth IRA in 2013, but didn’t fill out Part III to reduce her basis by her distributions.

She’s now about to file Forms 8606 for later years.

Is her basis reduced by the distributions she took in 2013 but didn’t report on Part III of her 2013 Form 8606? Or since 2013 is a closed year is her basis not reduced by the unreported distributions?

She’s under age 59.5, so to the extent the distributions exceed her basis they’ll be taxable.



Submitted by David Mertz on Mon, 2019-05-06 02:26

Failure to report the distribution properly doesn’t change the fact that basis was distributed according to the ordering rules for Roth IRA distributions, § 408A(d)(4)(B).  Her basis in Roth IRA contributions is reduced by Roth IRA distributions whether reported or not.  Form 8606 does not track Roth IRA basis.

Submitted by Alan - IRA critic on Mon, 2019-05-06 03:10

  • Related issues have come up from time to time regarding Form 8606 and Roth IRA distributions. One of those is the example of a taxpayer who has not get accurate tabs on their Roth regular contribution basis over the years and takes modest NQ Roth IRA distribution. Taxpayer does not know his actual basis to be shown on line 22, but does know for sure that it is more than the distributed amount, so taxpayer enters the distributed amount on line 22 that is less than actual basis. The question was whether the IRS will then treat regular Roth IRA basis as 0 for the purpose of any additional NQ Roth distributions. There isn’t any example I have heard of that explains what the IRS’ position is, but if they are to be consistent with the post DMx made, which I agree with, what the taxpayer shows on Form 8606 is not binding on what their actual basis is going forward.
  • Another example is the 10,000 first home exception for qualified distributions. The only way to know whether the taxpayer has applied some or all of this exception is by line 20 of Form 8606. As far as I can tell, completing line 20 is optional and the 10,000 limit could be saved for a later purchase. But if the taxpayer does enter an amount on line 20, that would appear to be the only way for the IRS to monitor use of this limit. Notably, there is no mention of this issue in the Roth IRA Distribution Regs. 1.408A-6 or in the 8606 Inst for line 20. The best advice is to NOT enter line 20 unless you need it because you are withdrawing more than your Roth IRA basis.

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