Non-Deductible IRA Contribution / Converted at Lower Amt
During the Covid Crisis last year, a client contributed (nondeductible) to an IRA. Client’s income is over the IRA deductibility limits, no other IRA assets, just the contribution (does back door each year). A week later converted the funds from IRA to Roth IRA. Normally we do these conversions fairly quickly, but it took the client a week or so to sign the conversion form. By that time, the IRA went from $6,000 to $5,500. Is this treated just the same as if the client converted $6k. My guess is the IRS doesn’t provide any allowances for future DEDUCTIBLE contributions (if any can be done) to still have some phantom basis carried over.
Permalink Submitted by Alan - IRA critic on Mon, 2021-03-08 20:42
With the conversion at 5500, client’s Form 8606 will show 1000 as remaining basis on line 14. That carries over to line 2 of the 2021 8606. Client will make the 2021 ND contribution and will have 7000 of basis to work with. If there are any gains before client does the annual conversion, the left over basis will absorb up to 1000 of those gains. Unused basis could be forfeited if his TIRAs are drained, so client may want to leave maybe $10 in the TIRA when he converts, so will always have a balance to apply the remaining basis against.