Roth IRA Conversion Mid-2020 with TIRA Contributions before and After Conversion

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robert13531
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Joined: Wed Apr 07, 2021 8:26 am

Roth IRA Conversion Mid-2020 with TIRA Contributions before and After Conversion

Post by robert13531 »

I've set up automatic nondeductible contributions into a TIRA for 2020 where $500/month was automatically contributed into the TIRA from Jan-Dec 2020. On 4/30/20, I converted the balance of my TIRA ($1,922 at the time due to market dips during COVID; 2k contributed to that date) to Roth but still kept contributing to TIRA for the rest of the year (additional 4k contributed from May-Dec). The remaining 4k contributions in the TIRA did end up making a profit by year end.

I'm having trouble figuring out representing this on Form 8606 for this year. My tax preparer is insisting that I don't need to complete Form 8606 lines 4-14 this year, specifically saying that line 6 should be zero since on 4/30, I converted 100% of my TIRA to Roth. She's only entered 6k on lines 1, 3, and 5; then $1,922 (the converted amount) on Part II lines 16-17.

Can anyone shed light on if this is correct or not?
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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Roth IRA Conversion Mid-2020 with TIRA Contributions before and After Conversion

Post by FiveK »

Your tax preparer is not correct. See the question in the box between lines 3 and 4 on Form 8606.

What do you get if you fill 8606 yourself? If the year end balance was $4100, perhaps something like the lines below?

Code: Select all

+────+───────────────────────────────+─────────+
| 1  | Nondeduct. Contrib.           | 6000    |
| 2  | tIRA basis                    | 0       |
| 3  | Add lines 1 and 2             | 6000    |
| 4  | Contributed next year         | 0       |
| 5  | Line 3 minus Line 4           | 6000    |
| 6  | EOY tIRA balance              | 4100    |
| 7  | non-conversion tIRA distrib.  | 0       |
| 8  | t->R conversion               | 1922    |
| 9  | Add lines 6, 7, and 8         | 6022    |
| 10 | Divide line 5 by line 9       | 0.9963  |
| 11 | Line 8 * line 10              | 1915    |
| 12 | Line 7 * line 10              | 0       |
| 13 | Add lines 11 and 12           | 1915    |
| 14 | Subtract line 13 from line 3  | 4085    |
| 15 | Taxable amount                | 0       |
| 16 | t->R conversion               | 1922    |
| 17 | Basis in t->R conversion      | 1915    |
| 18 | Taxable amount                | 7       |
+────+───────────────────────────────+─────────+
Topic Author
robert13531
Posts: 4
Joined: Wed Apr 07, 2021 8:26 am

Re: Roth IRA Conversion Mid-2020 with TIRA Contributions before and After Conversion

Post by robert13531 »

Thanks for the feedback. When I do the 8606 myself, I get that I owe taxes on $147.97. Even though I converted when the market was down, I ultimately made gains over the year, so I owe taxes on a proportion of those gains as determined by the percent calculated on line 10.

(Apologies for poor formatting)

+────+───────────────────────────────+─────────+
| 1 | Nondeduct. Contrib. | 6000 |
| 2 | tIRA basis | 0 |
| 3 | Add lines 1 and 2 | 6000 |
| 4 | Contributed next year | 0 |
| 5 | Line 3 minus Line 4 | 6000 |
| 6 | EOY tIRA balance | 4576.29 |
| 7 | non-conversion tIRA distrib. | 0 |
| 8 | t->R conversion | 1921.71 |
| 9 | Add lines 6, 7, and 8 | 6498 |
| 10 | Divide line 5 by line 9 | 0.923 |
| 11 | Line 8 * line 10 | 1773.74 |
| 12 | Line 7 * line 10 | 0 |
| 13 | Add lines 11 and 12 | 1773.74 |
| 14 | Subtract line 13 from line 3 | 4226.26 |
| 15 a, b, c | | 0 |
| 16 | t->R conversion | 1921.71 |
| 17 | Basis in t->R conversion | 1773.74 |
| 18 | Taxable amount | 147.97 |
+────+───────────────────────────────+─────────+
Last edited by robert13531 on Wed Apr 07, 2021 7:44 pm, edited 2 times in total.
diy60
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Joined: Wed Sep 07, 2016 6:54 pm

Re: Roth IRA Conversion Mid-2020 with TIRA Contributions before and After Conversion

Post by diy60 »

Line 18 is the amount subject to tax, not what you owe in taxes.
Topic Author
robert13531
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Joined: Wed Apr 07, 2021 8:26 am

Re: Roth IRA Conversion Mid-2020 with TIRA Contributions before and After Conversion

Post by robert13531 »

Thanks, for that clarification. That was my understanding, but I certainly misspoke -- edited my post. Thanks!
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FiveK
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Re: Roth IRA Conversion Mid-2020 with TIRA Contributions before and After Conversion

Post by FiveK »

robert13531 wrote: Wed Apr 07, 2021 6:26 pm Thanks for the feedback. When I do the 8606 myself, I get that I owe taxes on $147.97.
Appears you understand better than the tax preparer - well done!

You can reduce your taxable income by $1 if you go out to 4 decimal places in line 10. ;)
Topic Author
robert13531
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Joined: Wed Apr 07, 2021 8:26 am

Re: Roth IRA Conversion Mid-2020 with TIRA Contributions before and After Conversion

Post by robert13531 »

FiveK wrote: Wed Apr 07, 2021 8:18 pm
robert13531 wrote: Wed Apr 07, 2021 6:26 pm Thanks for the feedback. When I do the 8606 myself, I get that I owe taxes on $147.97.
Appears you understand better than the tax preparer - well done!

You can reduce your taxable income by $1 if you go out to 4 decimal places in line 10. ;)
That's the real pro-tip in all of this!

Thank you for your help! Guess I have a second career in tax prep to look forward to!
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