so if the conversion reported on 8606 for 2021 — would the brokerage house (where I keep my IRA accounts) get confused and make this conversion count toward 2021 rather than 2020 for tax purposes? And thus IRS due to different years for 8606 disallow the conversion? Does my CPA need to do anything to correct 8606? thank you.
A conversion can never count for another year, it always counts in the year completed. But the ND contribution was made for 2020, so must be reported on a 2020 8606. If your 2020 return was filed without an 8606, you can simply download one, sign it, and mail it to the IRS office showing on the 1040 instructions for your area. This does not otherwise affect your 2020 return, no change in 2020 taxes. Then be sure to tell the CPA next year that you made a 2020 ND contribution. The amount on line 14 of that 2020 8606 carrys forward to line 2 of the 2021 8606, and is what makes your 2021 conversion non taxable. Before then, you might also make your 2021 ND contribution and convert that also, so CPA also needs to know that you made a 2021 contribution if you do. In that case the two conversions done in 2021 get combined and the total should be tax free.
Thank you. So for example if i made 6,000 ND contribution on May 15, 2021 for 2020 and then I made another contribution 6000 ND contribution on May 30, 2021 for 2021. And then made Roth coversion on June 15, 2021 for combined amount of 12,000. Then my conversion for total of 12,000 should be tax free?
Make sure to do a Roth conversion of the entire balance in the traditional IRA including any small amount of earnings. $12,000 of the conversion will be tax free, but any earnings will be taxable
If you have any other Traditional IRAs, SEP IRAs, rollover IRAs though, your taxable amount will be calculated differently – based on the ratio of pretax amounts in all your IRAs to the total value of all your IRAs at year-end.
Permalink Submitted by Alan - IRA critic on Thu, 2021-05-13 22:37
The deadline to make a 2020 ND contribution is 5/17/2021. The conversion can be done anytime after the contribution, but better not to wait. The conversion will be reported on Form 8606 for 2021, but the 2020 ND contribution will have to be reported on a 2020 8606.