Need advice for IRA co-mingling

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Topic Author
dantio
Posts: 9
Joined: Tue Aug 20, 2019 12:21 pm

Need advice for IRA co-mingling

Post by dantio » Tue Oct 22, 2019 7:03 pm

I have a rollover IRA with funds that have been rolled over from various 401Ks from over the years. I have also over the past 5 years or so been contributing the max ($6k this year) to the same IRA. My income is too high to deduct any of my IRA contributions, so they go in post-tax.

I now realize this was a bonehead move, as I essentially co-mingled pre-tax 401k contributions with post-tax IRA contributions. I would really appreciate advice on what to do. Unfortunately, the 401k rollover funds are from like 4 different jobs in the past 15 years. And to make it worse, I have rolled over the rollover IRA from Betterment to Fidelity to Vanguard over the past 7 years, so tracking everything will be a complete nightmare.

Any thoughts on what I can do to avoid a major headache when I retire in about 20 years? I think the consensus will be to take care of this now, which I am willing to do, but am very concerned about how to properly report and account for things given that I really don't know how much of the total is from 401k rollovers, capital gains, and traditional IRA contributions.

Your advice and guidance would be truly appreciated!

fabdog
Posts: 875
Joined: Wed Jan 16, 2013 1:59 pm
Location: Williamsburg VA

Re: Need advice for IRA co-mingling

Post by fabdog » Tue Oct 22, 2019 7:24 pm

Have you filed an 8606 each year for your non deductible contributions? If so, then you'll have the amounts that are deductible and non deductible.

If you haven't, now would be a good time while you only have 5 years of mixing to untangle. Go back to the last year before you started the non deductible contributions, and get that end of year balance. Then each year you did the non deductible contributions create an 8606 for that year. It can be filed standalone, without a 1040X (amended return). File those with IRS and include a letter indicating you did not understand the filing requirement

Essentially what you'll have at the end of that process is the amount of basis in the account that won't be taxed at withdrawal (total of your non deductible contributions). The earnings on those plus your rolled over 401k money will all be taxable.

You'll need that basis figure when you eventually start withdrawing funds to establish how much is taxable and how much is withdrawal of your basis

Mike

Topic Author
dantio
Posts: 9
Joined: Tue Aug 20, 2019 12:21 pm

Re: Need advice for IRA co-mingling

Post by dantio » Tue Oct 22, 2019 7:36 pm

fabdog wrote:
Tue Oct 22, 2019 7:24 pm
Have you filed an 8606 each year for your non deductible contributions? If so, then you'll have the amounts that are deductible and non deductible.

If you haven't, now would be a good time while you only have 5 years of mixing to untangle. Go back to the last year before you started the non deductible contributions, and get that end of year balance. Then each year you did the non deductible contributions create an 8606 for that year. It can be filed standalone, without a 1040X (amended return). File those with IRS and include a letter indicating you did not understand the filing requirement

Essentially what you'll have at the end of that process is the amount of basis in the account that won't be taxed at withdrawal (total of your non deductible contributions). The earnings on those plus your rolled over 401k money will all be taxable.

You'll need that basis figure when you eventually start withdrawing funds to establish how much is taxable and how much is withdrawal of your basis

Mike
This is extremely helpful! I will work on this and hope all turns out ok. Thanks a lot!

krow36
Posts: 2266
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Need advice for IRA co-mingling

Post by krow36 » Tue Oct 22, 2019 7:39 pm

There's a Form 8606 for each year and can be downloaded here: https://apps.irs.gov/app/picklist/list/ ... earch=Find

Topic Author
dantio
Posts: 9
Joined: Tue Aug 20, 2019 12:21 pm

Re: Need advice for IRA co-mingling

Post by dantio » Tue Oct 22, 2019 7:45 pm

krow36 wrote:
Tue Oct 22, 2019 7:39 pm
There's a Form 8606 for each year and can be downloaded here: https://apps.irs.gov/app/picklist/list/ ... earch=Find
THANK YOU! This is great. I love it.

HomeStretch
Posts: 3427
Joined: Thu Dec 27, 2018 3:06 pm

Re: Need advice for IRA co-mingling

Post by HomeStretch » Tue Oct 22, 2019 7:46 pm

Do you have a current 401k plan (with good low-ER funds) that accepts rollovers in?

If so, you can rollover the pretax portion of your tIRA into your 401k. Then you can do a backdoor Roth to rollover your cumulative non-deductible tIRA contributions (per your newly-filed latest Form 8606 :happy ) to a Roth IRA where future earnings will be tax free.

Here’s a link to the BH wiki page on Backdoor Roth:
https://www.bogleheads.org/wiki/Backdoor_Roth

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GerryL
Posts: 2585
Joined: Fri Sep 20, 2013 11:40 pm

Re: Need advice for IRA co-mingling

Post by GerryL » Tue Oct 22, 2019 8:14 pm

dantio wrote:
Tue Oct 22, 2019 7:45 pm
krow36 wrote:
Tue Oct 22, 2019 7:39 pm
There's a Form 8606 for each year and can be downloaded here: https://apps.irs.gov/app/picklist/list/ ... earch=Find
THANK YOU! This is great. I love it.
Many years ago I contributed a few post-tax $$ into my IRA. Way back before I understood anything about taking the money out of an IRA. When I eventually realized that the pre- and post- $$ were irretrievably mixed, and that I would have to figure out how to show that on my taxes, I threw my hands up and told myself that since it was such an inconsequential amount -- way less than one percent of the total -- I would just forget about it and double pay the taxes it. But then someone -- maybe here at Bogleheads -- clued me in about how simple it is to do using the 8606. I did it. Easy. Just dug out my most recent 8606 and am ready to show the IRS that I already paid taxes on $45 of my RMD.

Just keep track of the 8606 after you stop making contributions to your IRA.

Topic Author
dantio
Posts: 9
Joined: Tue Aug 20, 2019 12:21 pm

Re: Need advice for IRA co-mingling

Post by dantio » Thu Jan 09, 2020 8:51 am

Can someone please recommend a CPA that I can work with to advise me on how to fix the 8606 mess that I have? I've looked back on my taxes that I filed over the past 7 years and there are years that I didn't file an 8606 at all, and other years where I did file one but the contributions amounts and carryovers are completely wrong. Ugh.

I really want to fix this mess now so that I don't have to worry about it for the next few decades prior to retiring. I could also use help with strategies on whether to roll any of these funds into my current 401k and/or convert any of my IRAs into Roths.

I live in Northern Virginia, but am open to working with a CPA regardless of their location, as long as they have the expertise to help me get on the right track.

Thanks for any recommendations you can provide!

krow36
Posts: 2266
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Need advice for IRA co-mingling

Post by krow36 » Thu Jan 09, 2020 11:50 pm

I have read many threads on this forum complaining about mistakes that CPAs have made with Form 8606 filings. You would be better off straightening it out yourself, I think. There are a number of very patient posters here that will help you, line by line if necessary! You need to post the data, year by year, and ask any questions you have. You have to start at your first non-deductible IRA and take it year by year. Your new Form 8606's will supersede your old incorrect ones.

Your situation is fairly common, so don't be embarrassed. I'm not one of the Form 8606 experts, but I'm sure they will turn up Friday. :)

HomeStretch
Posts: 3427
Joined: Thu Dec 27, 2018 3:06 pm

Re: Need advice for IRA co-mingling

Post by HomeStretch » Fri Jan 10, 2020 12:01 am

Start with the earliest (first) year that you had an event reportable on Form 8606 (such as a non-deductible IRA contribution) and work forward year by year.

To help with the Form 8606 preparation, you can pull supporting documentation from each year’s tax return support file (such as Forms 5498 and 1099R), first page of your tax returns (so you can see whether tIRA contributions were deducted or not, if there was any taxable income projected in connection with the Roth conversion), and brokerage statements showing the tIRA activity.

You can download Form 8606 for each tax year at the IRS site.

You won’t need to file a Form 8606 for any year you didn’t have reportable activity.

Topic Author
dantio
Posts: 9
Joined: Tue Aug 20, 2019 12:21 pm

Re: Need advice for IRA co-mingling

Post by dantio » Tue Jan 14, 2020 11:44 am

dantio wrote:
Tue Oct 22, 2019 7:36 pm
fabdog wrote:
Tue Oct 22, 2019 7:24 pm
Have you filed an 8606 each year for your non deductible contributions? If so, then you'll have the amounts that are deductible and non deductible.

If you haven't, now would be a good time while you only have 5 years of mixing to untangle. Go back to the last year before you started the non deductible contributions, and get that end of year balance. Then each year you did the non deductible contributions create an 8606 for that year. It can be filed standalone, without a 1040X (amended return). File those with IRS and include a letter indicating you did not understand the filing requirement

Essentially what you'll have at the end of that process is the amount of basis in the account that won't be taxed at withdrawal (total of your non deductible contributions). The earnings on those plus your rolled over 401k money will all be taxable.

You'll need that basis figure when you eventually start withdrawing funds to establish how much is taxable and how much is withdrawal of your basis

Mike
This is extremely helpful! I will work on this and hope all turns out ok. Thanks a lot!

Can I file all previous years' 8606 at the same time? I have figured out what I need to file for each year to correct this mess, but am not sure whether I can just send them all at the same time in one large envelope?

And do I need to wait until I receive some kind of confirmation from the IRS that my total nondeductible basis ending on 12/31/2018 is now updated and accurate before I file my 2019 taxes?

Thank you!

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