Personal Investments • Portfolio Review Request

I started contributing to a TIRA after I could no longer contribute to a Roth IRA, and have continued doing so (at max annual contribution limits) out of habit. Sounds like I should stop doing so and instead investigate backdoor Roth IRA?

Making non-deductible contributions to a tIRA is the first step of backdoor Roth IRA. So perhaps inadvertently you did something right. But whenever you make a non-deductible contribution to a tIRA, with our without Roth conversions, you will be forced to file a Form 8606. Have you been filing those forms these past years? { sorry if you answered this question already, I just jumped only on this last post }. So, DO NOT stop doing what you are doing, at least there is NO HARM in doing what you are doing. UNLESS you make a Roth conversion, which is when everything goes to hell in a handbasket.

If you did keep filing Form 8606, then look at Line 14 of the latest Form 8606. That is your total basis in the traditional IRA. Everything else is pre-tax. If your workplace plan 401(k) will accept incoming rollovers from IRA, then your next step is to move your pre-tax traditional IRA assets (total balance - basis as reported on Line 14 of Form 8606) to the workplace 401k. Remainder balance in the tIRA can then be converted to Roth without any taxes.

The main pitfall is that you MUST keep AT LEAST the basis amount back in the tIRA. "The market ate my basis" is not an excuse the IRS is going to accept. If due to market fluctuations the basis left back in the tIRA drops below the basis, then by definition some of the non-deductible contributions to your tIRA will have been migrated to 401(k). Which is against the law, by law 401k or 403b plans are not allowed to accept non-deductible contributions.

For this reason, the usual suggestion is to separate the basis amount to a money-market fund that's guaranteed to NOT lose value while the rest of the assets are in transit to your 401(k)

… Decide whether to do an annual backdoor Roth or to contribute the $7k to Taxable. Clean up any
Form 8606 reporting issues. It would be preferable to determine whether your historical Forms 8606 are correct before you file your 2023 return so you can use the correct 12/31/22 TIRA basis for your 2023 Form 8606 Line 2. …

Thank you for the collated summary. Lots of insight and commentary on the TIRA so I'll make a point of digging into it and reviewing this with my tax accountant next week.

Not all tax preparers are well-versed about Form 8606 or have a tax questionnaire that asks about non-deductible TIRA contributions. Most also bill by the hour.

In advance of your meeting next week, consider:
1. pulling out your copy of the 2022 Form 1040 (or the filing for the most recent year in which you made a non-deductible contribution) now to see whether Form 8606 was filed.
2. check the amount on Form 8606 Line 14 for your TIRA basis as of 12/31/xx (12/31/22 for a 2022 Form 1040). This amount should be the cumulative non-deductible TIRA contributions that you have made assuming no distributions.
3. the cumulative TIRA non-deductible contributions should be equal to the sum of the Form 5498s issued to you. You should be keeping these Form 8606s and Form 5498s in a tax carryforward file until the Roth IRA is emptied in the future.
4. email your tax preparer in advance of the meeting if there are no Form 8606s filed or if the Form 8606 12/31/22 basis does not agree with your contribution records. This way your tax preparer is prepared and you can discuss/resolve at the meeting.

Tax software often keeps a history of IRA basis additions by year. If you run into issues with #3, you can ask for the IRA history to be sent to you prior to the meeting to see if you have missed a contribution/5498, etc.

Statistics: Posted by dayfornight — Fri Mar 15, 2024 7:16 pm — Replies 22 — Views 3198