Back door Roth IRA, 8606 form conflict with accountant

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Hulk
Posts: 208
Joined: Mon Oct 12, 2015 1:08 pm

Back door Roth IRA, 8606 form conflict with accountant

Post by Hulk » Sun Apr 15, 2018 4:32 pm

Hello,

My accountant is struggling to fill out the 8606 form correctly. I learned about the BD Roth IRA through White Coat Investor and have done it per his excellent tutorial

https://www.whitecoatinvestor.com/backd ... ent-482400

However, my accountant has filled in line 14 as 5500, not zero as WCI explains to do. Specifically WCI mentions to watch for lines 2, 14, 15 and 18 and make sure they are zero, not 5500 or you will be paying taxes on this money twice.

I have filled for an extension to resolve this issue with my accountant, but can someone please explain how this makes me taxed twice. The 5500 is a non-deductible traditional IRA contribution. Is filling it out wrong a problem now or years later in retirement when I try to pull the money out? I really don't understand it, just trying to do what WCI says in his tutorial.

For some reason, my accountant is not filling out lines 4-13, which I assume is making them zero. Well, the formula for line 14 is line 3 minus line 13. Since 13 isn't filled out (and line 3 is 5500) the formula is 5500 - 0 = 5500. I tried to explain this and told her to please fill out all lines, including 13, and then the formula would be 5500 - 5500 = 0. She said she cant put it in the software that way bla bla. I realize I may need a new accountant, but until I can resolve this with her or find a new accountant, can some explain the issue to me? What happens when it is not fill out correctly?

Thanks!

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FiveK
Posts: 5394
Joined: Sun Mar 16, 2014 2:43 pm

Re: Back door Roth IRA, 8606 form conflict with accountant

Post by FiveK » Sun Apr 15, 2018 4:44 pm

You might look at the 'Form8606' tab in the personal finance toolbox spreadsheet. There is nothing inherently wrong with a non-zero entry on line 14. It depends on what else you did.

Publication 590-B worksheet 1-1 interacts with Form 8606, and may cause blank lines on 8606. TurboTax's worksheet appears different from the one in 590-B, so...?
Last edited by FiveK on Sun Apr 15, 2018 4:46 pm, edited 1 time in total.

retiredjg
Posts: 33576
Joined: Thu Jan 10, 2008 12:56 pm

Re: Back door Roth IRA, 8606 form conflict with accountant

Post by retiredjg » Sun Apr 15, 2018 4:45 pm

Hulk wrote:
Sun Apr 15, 2018 4:32 pm
Hello,

My accountant is struggling to fill out the 8606 form correctly. I learned about the BD Roth IRA through White Coat Investor and have done it per his excellent tutorial

https://www.whitecoatinvestor.com/backd ... ent-482400

However, my accountant has filled in line 14 as 5500, not zero as WCI explains to do. Specifically he mentions to watch for lines 2, 14, 15 and 18 and make sure they are zero, not 5500 or you will be paying taxes on this money twice.
Nobody "fills in" line 14. Whatever goes there is the result of what happens on the rest of the form.

Tell us exactly what you did (amounts and dates) and tell us what the different lines say in your accountant's version. Someone here can help figure it out.

I have filled for an extension to resolve this issue with my accountant, but can someone please explain how this makes me taxed twice. The 5500 is a non-deductible traditional IRA contribution. Is filling it out wrong a problem now or years later in retirement when I try to pull the money out? I really don't understand it, just trying to do what WCI says in his tutorial.
If line 14 is $5,500 when it should be $0, something is wrong. If something is wrong, you may get taxed a second time on the same money.

For some reason, my accountant is not filling out lines 4-13, which I assume is making them zero. Well, the formula for line 14 is line 3 minus line 13. Since 13 isn't filled out (and line 3 is 5500) the formula is 5500 - 0 = 5500. I tried to explain this and told her to please fill out all lines, including 13, and then the formula would be 5500 - 5500 = 0. She said she cant put it in the software that way bla bla. I realize I may need a new accountant, but until I can resolve this with her or find a new accountant, can some explain the issue to me? What happens when it is not fill out correctly?
Using software, it is no uncommon for lines 6 - 12 to be blank. That is because the software goes through a different procedure.

You have not mentioned lines 16, 17, and 18. If you did a Roth conversion in 2017 those lines need to have something entered. You should have received a 1099 that would populate those lines.


If you did the Roth conversion in 2018, not 2017, then line 14 probably should be $5,500.

Again, tell us exactly what you did and someone will help you with it.

Hulk
Posts: 208
Joined: Mon Oct 12, 2015 1:08 pm

Re: Back door Roth IRA, 8606 form conflict with accountant

Post by Hulk » Sun Apr 15, 2018 6:50 pm

retiredjg wrote:
Sun Apr 15, 2018 4:45 pm
Hulk wrote:
Sun Apr 15, 2018 4:32 pm
Hello,

My accountant is struggling to fill out the 8606 form correctly. I learned about the BD Roth IRA through White Coat Investor and have done it per his excellent tutorial

https://www.whitecoatinvestor.com/backd ... ent-482400

However, my accountant has filled in line 14 as 5500, not zero as WCI explains to do. Specifically he mentions to watch for lines 2, 14, 15 and 18 and make sure they are zero, not 5500 or you will be paying taxes on this money twice.
Nobody "fills in" line 14. Whatever goes there is the result of what happens on the rest of the form.

Tell us exactly what you did (amounts and dates) and tell us what the different lines say in your accountant's version. Someone here can help figure it out.

I have filled for an extension to resolve this issue with my accountant, but can someone please explain how this makes me taxed twice. The 5500 is a non-deductible traditional IRA contribution. Is filling it out wrong a problem now or years later in retirement when I try to pull the money out? I really don't understand it, just trying to do what WCI says in his tutorial.
If line 14 is $5,500 when it should be $0, something is wrong. If something is wrong, you may get taxed a second time on the same money.

For some reason, my accountant is not filling out lines 4-13, which I assume is making them zero. Well, the formula for line 14 is line 3 minus line 13. Since 13 isn't filled out (and line 3 is 5500) the formula is 5500 - 0 = 5500. I tried to explain this and told her to please fill out all lines, including 13, and then the formula would be 5500 - 5500 = 0. She said she cant put it in the software that way bla bla. I realize I may need a new accountant, but until I can resolve this with her or find a new accountant, can some explain the issue to me? What happens when it is not fill out correctly?
Using software, it is no uncommon for lines 6 - 12 to be blank. That is because the software goes through a different procedure.

You have not mentioned lines 16, 17, and 18. If you did a Roth conversion in 2017 those lines need to have something entered. You should have received a 1099 that would populate those lines.


If you did the Roth conversion in 2018, not 2017, then line 14 probably should be $5,500.

Again, tell us exactly what you did and someone will help you with it.
Thanks retiredjg,

So I contributed 5500 to my traditional IRA the first week of January 2017, kept it in a money market so no growth. Then a few days later in January 2017 I rolled the entire thing into my Roth IRA. Then a few days later put it in an S&P index fund instead of an MM account. Did nothing else all year and had a balance of 0 on December 31, 2017 in my traditional IRA. I also have no other IRAs (SEP-IRA etc.).

She filled out the 8606 as follows
Line 1 - 5500
Line 2 - 0
Line 3 - 5500
Lines 4-13 blank
Line 14 - 5500
Lines 15-25c blank

I did the same thing in 2016 and 2015 and she filled it out the same as you see above. I brought it up last year and she said I was wrong and it didn't matter. In 2015 my AGI (married filling jointly) was only 155 so I didnt need to do it through the back door I guess, but did. Not sure if an 8606 is required in that circumstance.

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FiveK
Posts: 5394
Joined: Sun Mar 16, 2014 2:43 pm

Re: Back door Roth IRA, 8606 form conflict with accountant

Post by FiveK » Sun Apr 15, 2018 7:08 pm

Hulk wrote:
Sun Apr 15, 2018 6:50 pm
So I contributed 5500 to my traditional IRA the first week of January 2017, kept it in a money market so no growth. Then a few days later in January 2017 I rolled the entire thing into my Roth IRA. Then a few days later put it in an S&P index fund instead of an MM account. Did nothing else all year and had a balance of 0 on December 31, 2017 in my traditional IRA. I also have no other IRAs (SEP-IRA etc.).

She filled out the 8606 as follows
Line 1 - 5500
Line 2 - 0
Line 3 - 5500
Lines 4-13 blank
Line 14 - 5500
Lines 15-25c blank

I did the same thing in 2016 and 2015 and she filled it out the same as you see above. I brought it up last year and she said I was wrong and it didn't matter. In 2015 my AGI (married filling jointly) was only 155 so I didnt need to do it through the back door I guess, but did. Not sure if an 8606 is required in that circumstance.
Assuming the contributions were for the year in which they were made, and your 31-Dec-2014 tIRA basis was $0, it would seem 8606 should have $5500 on lines 1, 3, 5, 13, 16, and 17, and $0 or blank on all other lines for all three years. Is that what you see also?

Hulk
Posts: 208
Joined: Mon Oct 12, 2015 1:08 pm

Re: Back door Roth IRA, 8606 form conflict with accountant

Post by Hulk » Sun Apr 15, 2018 7:21 pm

FiveK wrote:
Sun Apr 15, 2018 7:08 pm
Hulk wrote:
Sun Apr 15, 2018 6:50 pm
So I contributed 5500 to my traditional IRA the first week of January 2017, kept it in a money market so no growth. Then a few days later in January 2017 I rolled the entire thing into my Roth IRA. Then a few days later put it in an S&P index fund instead of an MM account. Did nothing else all year and had a balance of 0 on December 31, 2017 in my traditional IRA. I also have no other IRAs (SEP-IRA etc.).

She filled out the 8606 as follows
Line 1 - 5500
Line 2 - 0
Line 3 - 5500
Lines 4-13 blank
Line 14 - 5500
Lines 15-25c blank

I did the same thing in 2016 and 2015 and she filled it out the same as you see above. I brought it up last year and she said I was wrong and it didn't matter. In 2015 my AGI (married filling jointly) was only 155 so I didnt need to do it through the back door I guess, but did. Not sure if an 8606 is required in that circumstance.
Assuming the contributions were for the year in which they were made, and your 31-Dec-2014 tIRA basis was $0, it would seem 8606 should have $5500 on lines 1, 3, 5, 13, 16, and 17, and $0 or blank on all other lines for all three years. Is that what you see also?
Thanks FiveK,

yes, agreed. And yes, 31-Dec-2014 tIRA basis was $0

retiredjg
Posts: 33576
Joined: Thu Jan 10, 2008 12:56 pm

Re: Back door Roth IRA, 8606 form conflict with accountant

Post by retiredjg » Mon Apr 16, 2018 6:33 am

Hulk wrote:
Sun Apr 15, 2018 6:50 pm
So I contributed 5500 to my traditional IRA the first week of January 2017, kept it in a money market so no growth. Then a few days later in January 2017 I rolled the entire thing into my Roth IRA. Then a few days later put it in an S&P index fund instead of an MM account. Did nothing else all year and had a balance of 0 on December 31, 2017 in my traditional IRA. I also have no other IRAs (SEP-IRA etc.).

She filled out the 8606 as follows
Line 1 - 5500
Line 2 - 0
Line 3 - 5500
Lines 4-13 blank
Line 14 - 5500
Lines 15-25c blank

I did the same thing in 2016 and 2015 and she filled it out the same as you see above. I brought it up last year and she said I was wrong and it didn't matter. In 2015 my AGI (married filling jointly) was only 155 so I didnt need to do it through the back door I guess, but did. Not sure if an 8606 is required in that circumstance.
The fact that she did the same thing in 2015 and 2016 puts things in a different light. She is wrong, but I'd agree that it may not matter.

The easiest way to fix this is to have her file your taxes as they currently are and then you do all 3 8606 forms over - by hand, not software - and send them in separately as corrected forms. This will not change your taxes, but it will get the forms right. It is not a great solution, but it will probably do. Each year's form is available on the internet for download. Each year's form should look like this:

Line 1 - 5500
Line 2 - 0
Line 3 - 5500
Line 4 - 0
Line 5 - 5500
Line 8 - 5500
Line 9 - 5500
Line 10 - 1
Line11 - 5500
Line 12 - 0
Line 13 -5500
Line 14 - 0
Lines 15 - 0
Line16 - 5500
Line 17 -5500
Line 18 - 0

This form, filled out by software, often looks different - lines 6 - 12 may be blank, but the rest (Lines 1, 2, 14, 16 - 18) should be the same.



The better solution is for her to understand the form and she will never understand it if she only uses software. However, at this time of year, there's probably a snowball's chance that she will take the time to try to figure it out because she sees no need to do it.


We had several people in past years report that they did the form correctly using software but that lines 16 - 18 were blank. One poster (Chip) played with it and found that answering a certain question a different way would populate lines 16 - 18. You can see this discussed in this thread. That might be part of your problem, but it does not explain why your accountant has failed to bring line 14 forward each year to the next year's line 2.

viewtopic.php?t=219445


How to work with various software programs has been addressed by tfb on his blog. Maybe your accountant would be willing to take the time to look these over the season is over. The approach on this blog is not to answer the interview questions but to pull up the forms and fill them in. This is probably more like she is accustomed to doing it.

https://thefinancebuff.com/the-backdoor ... ow-to.html


As for paying taxes twice on this money, what she has done will not cause that. In fact, the way she is filling out the form leaves you will basis that you actually do not have anymore. Perhaps that is what she means by "it didn't matter". And in that sense, it does not matter, but still the IRS may be wondering why you are claiming basis that you don't have.

I'm not sure that finding another accountant will help - many are unfamiliar with this and struggle with it as much as the posters here do.

Good luck!

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