[Help Determining IRA Basis - Did not file 8606]

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
EggplantBasil
Posts: 3
Joined: Sun Sep 01, 2019 2:59 am
Location: Seattle, WA

[Help Determining IRA Basis - Did not file 8606]

Post by EggplantBasil » Thu Feb 13, 2020 7:08 pm

[Moved into a new thread from: Help Determining IRA Basis --admin LadyGeek]

Im in sort of a tricky situation involving IRA basis.

I made the following contributions to my traditional ira:
-$5500 in 2017 (when I opened my first and only traditional ira)
-$5500 in 2018
-$6000 in 2019

For all these years I made over the income limit for deducting traditional ira contributions, so I believe my basis is $17,000.

In early 2019 (when the market had fallen) I rolled over the entire account to my Roth IRA (I believe this is the back door Roth IRA). The value of the account at the time was below $17k.

So all that is well and good (I think? Please tell me if something above is wrong 😁) but now I’m doing my taxes and TurboTax is telling me that my basis should have been sent to the irs using form 8606 for each of the years in question. I used TurboTax for each of these years and I checked my filings and the 8606 form was not in any of them.

The way I see it, I have a few options:
1. Bite a gigantic bullet and pay taxes on this money twice. (This seems dumb)
2. Send in 2017, 2018, and 2019 8606s asap, maybe pay a late fee on them, and then file my 2019 taxes as if I have $17k in basis.
3. Just file my taxes with $17k of basis without filing 8606s for previous years. The irs knows I made over the limit for each of these years contributions, so they should be able to tell that my basis is the sum of my contributions.

#2 seems like the obviously right answer, but i’m very lazy, somewhat young and dumb, and option #3 is tantalizingly easy. Would any of you consider option 3? Is there anything I’m missing? The fact that TurboTax didn’t generate and file 8606 for me is also adding some confusion to my situation.

nolesrule
Posts: 1494
Joined: Thu Feb 26, 2015 10:59 am

Re: Help Determining IRA Basis

Post by nolesrule » Thu Feb 13, 2020 7:40 pm

EggplantBasil wrote:
Thu Feb 13, 2020 7:08 pm
Im in sort of a tricky situation involving IRA basis.

I made the following contributions to my traditional ira:
-$5500 in 2017 (when I opened my first and only traditional ira)
-$5500 in 2018
-$6000 in 2019

For all these years I made over the income limit for deducting traditional ira contributions, so I believe my basis is $17,000.

In early 2019 (when the market had fallen) I rolled over the entire account to my Roth IRA (I believe this is the back door Roth IRA). The value of the account at the time was below $17k.

So all that is well and good (I think? Please tell me if something above is wrong 😁) but now I’m doing my taxes and TurboTax is telling me that my basis should have been sent to the irs using form 8606 for each of the years in question. I used TurboTax for each of these years and I checked my filings and the 8606 form was not in any of them.

The way I see it, I have a few options:
1. Bite a gigantic bullet and pay taxes on this money twice. (This seems dumb)
2. Send in 2017, 2018, and 2019 8606s asap, maybe pay a late fee on them, and then file my 2019 taxes as if I have $17k in basis.
3. Just file my taxes with $17k of basis without filing 8606s for previous years. The irs knows I made over the limit for each of these years contributions, so they should be able to tell that my basis is the sum of my contributions.

#2 seems like the obviously right answer, but i’m very lazy, somewhat young and dumb, and option #3 is tantalizingly easy. Would any of you consider option 3? Is there anything I’m missing? The fact that TurboTax didn’t generate and file 8606 for me is also adding some confusion to my situation.
Do option 2. If you do Option 3 you are likely to get a correspondence audit and you'll have to then file the forms anyway and respond to the audit, which would be less easy than just filing the past forms.

I have yet to read of anyone being charged a late fee for past year Form 8606 filings.

retiredjg
Posts: 39368
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help Determining IRA Basis

Post by retiredjg » Fri Feb 14, 2020 6:54 am

EggplantBasil, Welcome to the forum.

I have asked a moderator to move your question into its own thread so that things to not get confused between the original poster's situation and your situation.

1. Bite a gigantic bullet and pay taxes on this money twice. (This seems dumb)
Yes, that would be dumb. :happy

2. Send in 2017, 2018, and 2019 8606s asap, maybe pay a late fee on them, and then file my 2019 taxes as if I have $17k in basis.
Close to right. You need to fill out forms 8606 for 2017 and 2018 (downloadable from the internet) and sign and mail them to the IRS now, before you file your taxes. The 2019 form 8606 will be completed as you file your 2019 taxes. Or have you already sent your taxes off?

3. Just file my taxes with $17k of basis without filing 8606s for previous years. The irs knows I made over the limit for each of these years contributions, so they should be able to tell that my basis is the sum of my contributions.
This will not work. Right now, the fix is pretty easy. Just do it.

User avatar
Duckie
Posts: 7072
Joined: Thu Mar 08, 2007 2:55 pm

Re: [Help Determining IRA Basis - Did not file 8606]

Post by Duckie » Fri Feb 14, 2020 5:40 pm

EggplantBasil wrote:Send in 2017, 2018, and 2019 8606s asap, maybe pay a late fee on them, and then file my 2019 taxes as if I have $17k in basis.
Here is where you get the 2017 and 2018 forms to download, print, fill out, and mail in. 2019 Form 8606 gets filed with your 2019 taxes.

retiringwhen
Posts: 1611
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: [Help Determining IRA Basis - Did not file 8606]

Post by retiringwhen » Fri Feb 14, 2020 5:48 pm

I agree, #2 as commented upon is the correct path.

Just one question for verification. Did you try to deduct the tradIRA contributions on your 2017 and 2018 tax returns?

If yes, you have a much bigger problem as you will need to submit amended returns for both years along with a check (and penalties). I don't think you did, if you were using tax software it would have flagged this as a problem.

If no, yeah! you are all good.

Topic Author
EggplantBasil
Posts: 3
Joined: Sun Sep 01, 2019 2:59 am
Location: Seattle, WA

Re: [Help Determining IRA Basis - Did not file 8606]

Post by EggplantBasil » Sat Feb 15, 2020 4:24 am

Thanks everyone for the welcome, the advice, and fixing up my post to better align to forum rules. :D

I'll be going with option 2, with the clarification that the i'm only sending the 2017 and 2018 8606s by mail, and I'll efile the 2019 8606 along with the rest of my 2019 taxes in late march once the IRS has had a while to process my 8606s.
retiringwhen wrote:
Fri Feb 14, 2020 5:48 pm
Just one question for verification. Did you try to deduct the tradIRA contributions on your 2017 and 2018 tax returns?

If yes, you have a much bigger problem as you will need to submit amended returns for both years along with a check (and penalties). I don't think you did, if you were using tax software it would have flagged this as a problem.

If no, yeah! you are all good.
I double checked to confirm, and fortunately turbotax did not screw me that badly on my 2017 and 2018 tax returns.

Post Reply