"Accidental" post-tax money contribution into a rollover IRA account - options

Submitted by Amit Bhandari on Wed, 2023-11-08 21:40

Between 2019-2021 18k contribution were made (pos-tax money) to rollover IRA account. Contribution was not caught up until recently. I am filing form 8608 with IRA for those 3 years. What are the options now to separate this money and not pay tax on this 18k when withdrawing money from this IRA account in 10 years or so? Please advise. Thank you.

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Permalink Submitted by Alan - IRA critic on Wed, 2023-11-08 22:23

FIling these late 8606 forms would document to the IRS that these contributions were non deductible. They would not be taxed a second time, but an 8606 would have to be completed for each year there was a distribution to calculate the non taxable portion. This would have to be done for as long as distributions were taken from any owned IRA.
The only way to separate the 18,000 is to roll the pre tax balance (the balance less 18k) to your employer plan if you have one that accepts IRA rollovers. You could then convert the 18k to a Roth IRA tax free.
Another option is to convert all your TIRA accounts to Roth and pay tax on all but the 18k, but this is only practical if your total IRA balance is not alot more, eg not more than 40k.