Form 8606 help

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Topic Author
joetro29
Posts: 265
Joined: Sat Dec 05, 2015 10:10 pm

Form 8606 help

Post by joetro29 »

Having a whale of a time getting 8606 to line up with what I think the outcome should be. In short:

Never had traditional IRA before 2021
Jan 2021 contributed $3000 to Roth
Later realized would make too much money.
Recharacterized contribution into traditional IRA Nov 2022 at $3956 (some gains)
Added another $3000 to traditional
Converted $6963 into Roth (traditional gained a little more money) - to complete backdoor Roth

Tax form shows taxable income of 6963 but think should just be 963 (the earnings)

If skip to part II of 8606 can easily get math to work

Line 16 is 6963
Line 17 is 6000
Line 18 is taxable of 963

But have to also do part I and cannot get the math for 15c to be 963.

Help!

Thank you!
RetiredAL
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Location: SF Bay Area

Re: Form 8606 help

Post by RetiredAL »

joetro29 wrote: Sun Jul 03, 2022 12:15 am Having a whale of a time getting 8606 to line up with what I think the outcome should be. In short:

Never had traditional IRA before 2021
Jan 2021 contributed $3000 to Roth
Later realized would make too much money.
Recharacterized contribution into traditional IRA Nov 2022 at $3956 (some gains) 2022? typo?
Added another $3000 to traditional
Converted $6963 into Roth (traditional gained a little more money) - to complete backdoor Roth

Tax form shows taxable income of 6963 but think should just be 963 (the earnings)

If skip to part II of 8606 can easily get math to work

Line 16 is 6963
Line 17 is 6000
Line 18 is taxable of 963

But have to also do part I and cannot get the math for 15c to be 963.

Help!

Thank you!
little_star
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Re: Form 8606 help

Post by little_star »

This appears to be a common problem with certain tax software. You need to answer the questions in the correct time-sequence order, not in the order presented, so that the software knows that you made a $6k non-deductible contribution. If you fill out the form by hand, you should have no problems.

Line 1: $6000 (non-deductible contribution)
Line 2: $0 (existing basis from previous years)
Line 3: $6000
Line 4: $0
Line 5: $6000
Line 6: $0 (Balance of tIRA accounts on Dec 31, 2021)
Line 7: $0 (Distributions)
Line 8: $6963 (amount converted)
Line 9: $6963
Line 10: 0.8617
Line 11: $6000 (muliply line 8 and 10)
Line 12: blank
Line 13: $6000
Line 14: $0

Part II
Line 16: $6963
Line 17: $6000
Line 18: $963

Unless you have taken a distribution (not indicated in your summary of what you have done), then you do not need to complete line 15 of Part I.
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retiredjg
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Re: Form 8606 help

Post by retiredjg »

joetro29 wrote: Sun Jul 03, 2022 12:15 am But have to also do part I and cannot get the math for 15c to be 963.
You probably do not want line 15c to be 963.

I know it says "taxable amount", but that is not the taxable amount you want. That line only applies if you have also taken distributions from your IRA. You have not done that (according to what you said.) You did a conversion, not a distribution.

little-star's post describes what you said you did. If that is not what you have, you have done something wrong. Exception....some software does not fill in lines 6 - 12. They do the calculation in the background on a worksheet that you cannot see.
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celia
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Re: Form 8606 help

Post by celia »

Order of data entry:

Back out all your IRA transactions to start with a clean slate. You should have received 2 Form 1099-Rs for the 2 transactions that were distributions, one from the Roth and one from the IRA. So enter all the 1099-R data as you report each distribution:


Report Roth contribution.
Report Recharacterization as a Roth distribution with $3000 of it becoming a non-deductable IRA contribution.
Report second Traditional IRA contribution as non-deductible.
Report Traditional IRA distribution as a Roth conversion.

You’ll have to jump around in your software for each step as contributions are reported in a different area than distributions. Also, look at all the follow-on questions in each step carefully and answer each one. Stop and look up the terminology as needed since it can be confusing.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Topic Author
joetro29
Posts: 265
Joined: Sat Dec 05, 2015 10:10 pm

Re: Form 8606 help

Post by joetro29 »

Thanks. But with step 1 I really only put 3000 into traditional directly as I originally contributed the first 3K to my Roth
Topic Author
joetro29
Posts: 265
Joined: Sat Dec 05, 2015 10:10 pm

Re: Form 8606 help

Post by joetro29 »

I don’t think I took a distribution despite what my vanguard forms say. Because it was all recharacterization and then rollover.
little_star wrote: Sun Jul 03, 2022 7:51 am This appears to be a common problem with certain tax software. You need to answer the questions in the correct time-sequence order, not in the order presented, so that the software knows that you made a $6k non-deductible contribution. If you fill out the form by hand, you should have no problems.

Line 1: $6000 (non-deductible contribution)
Line 2: $0 (existing basis from previous years)
Line 3: $6000
Line 4: $0
Line 5: $6000
Line 6: $0 (Balance of tIRA accounts on Dec 31, 2021)
Line 7: $0 (Distributions)
Line 8: $6963 (amount converted)
Line 9: $6963
Line 10: 0.8617
Line 11: $6000 (muliply line 8 and 10)
Line 12: blank
Line 13: $6000
Line 14: $0

Part II
Line 16: $6963
Line 17: $6000
Line 18: $963

Unless you have taken a distribution (not indicated in your summary of what you have done), then you do not need to complete line 15 of Part I.
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celia
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Re: Form 8606 help

Post by celia »

retiredjg wrote: Sun Jul 03, 2022 9:17 am I know it says "taxable amount", but that is not the taxable amount you want. That line only applies if you have also taken distributions from your IRA. You have not done that (according to what you said.) You did a conversion, not a distribution.
A Roth conversion IS a distribution from a traditional IRA combined with a rollover contribution. The distribution is reported as such on the 1099-R and the contribution is reported on Form 5498 the following May.

A “distribution” is money coming out of any IRA, regardless of where it goes later. It always causes a 1099-R to be generated, and thus is reportable on your taxes, even if no taxes are due.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
sycamore
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Re: Form 8606 help

Post by sycamore »

celia wrote: Sun Jul 03, 2022 10:46 am
retiredjg wrote: Sun Jul 03, 2022 9:17 am I know it says "taxable amount", but that is not the taxable amount you want. That line only applies if you have also taken distributions from your IRA. You have not done that (according to what you said.) You did a conversion, not a distribution.
A Roth conversion IS a distribution from a traditional IRA combined with a rollover contribution. The distribution is reported as such on the 1099-R and the contribution is reported on Form 5498 the following May.
I think an example would help regarding the "contribution is reported on Form 5498" statement.

In 2021, I did a both a Trad-to-Roth conversion and a separate Roth contribution.

On the 5498, the conversion appears not as a "rollover contribution" (box 2) but as "Roth IRA conversion amount" (box 3).
The contribution shows up as "Roth IRA contributions" (box 10).

On the 1099-R, the conversion shows in "Gross distribution" (box 1) and "Taxable amount" (box 2).
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retiredjg
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Re: Form 8606 help

Post by retiredjg »

joetro29 wrote: Sun Jul 03, 2022 10:25 am Thanks. But with step 1 I really only put 3000 into traditional directly as I originally contributed the first 3K to my Roth
Nevertheless, you have to report what you did. You made a Roth IRA contribution. You recharacterized it. You made a non-deductible contribution. Then you did a Roth conversion on the entire thing.

That is what you have to tell your software (or your pencil). You cannot just say you contributed $6k to traditional IRA because that is not how it happened.

viewtopic.php?p=6511457#p6511457 is a post from someone who did this and how s/he reported it.

In either case, I do not think that line 15 should is involved.
little_star
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Joined: Tue Jun 16, 2020 5:08 pm

Re: Form 8606 help

Post by little_star »

joetro29 wrote: Sun Jul 03, 2022 10:25 am Thanks. But with step 1 I really only put 3000 into traditional directly as I originally contributed the first 3K to my Roth
Your re-characterization of the Roth contribution makes it *as if* you had contributed directly to the traditional IRA instead. So you made a total of $6k non-deductible contributions to a traditional IRA in 2021. You will need to document your recharacterization with a brief statement along the lines of "I contributed $3000 to a Roth IRA on [DATE]. I recharacterized the $3000 contribution, with a value of $3956, on [DATE]."

The conversion is documented on Line 8 of Form 8606. Since all of your "distributions" are conversions, Line 15a is 0 and you can proceed directly to Part II.
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retiredjg
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Re: Form 8606 help

Post by retiredjg »

celia wrote: Sun Jul 03, 2022 10:46 am
retiredjg wrote: Sun Jul 03, 2022 9:17 am I know it says "taxable amount", but that is not the taxable amount you want. That line only applies if you have also taken distributions from your IRA. You have not done that (according to what you said.) You did a conversion, not a distribution.
A Roth conversion IS a distribution from a traditional IRA combined with a rollover contribution. The distribution is reported as such on the 1099-R and the contribution is reported on Form 5498 the following May.

A “distribution” is money coming out of any IRA, regardless of where it goes later. It always causes a 1099-R to be generated, and thus is reportable on your taxes, even if no taxes are due.
I'm talking about "distribution" as used in line 15.

Line 15 requires a number on line 7, but line 7 excludes several kinds of distributions, including Roth conversions and re-characterizations.

Our original poster is trying to get a specific number on line 15c. But I do not believe line 15 is involved in this at all. It should be blank.
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celia
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Re: Form 8606 help

Post by celia »

Line 15a. Subtract line 12 from line 7.

Since both lines 12 and 7 should be 0 for the OP, lines 15a, 15b, and 15c are also 0.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Alan S.
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Re: Form 8606 help

Post by Alan S. »

It is correct that your Part I of Form 8606 should end with line 14. Part II has already been clarified with taxable amount being 963. Ignore Box 2a of the TIRA conversion 1099R as that figure is only provisional and your 8606 overrides it to produce the actual taxable amount of the conversion.

A recharacterization is always a direct transfer, never a distribution. Assuming that your recharacterization 1099R is coded "N" in Box 7 (advise if different), the effect of the recharacterization is:

1) The 3000 recharacterized Roth contribution is now treated as a non deductible TIRA contribution, and added to your other TIRA contribution of 3000 on line 1 of Form 8606 to add up to 6000.
2) You should include an explanatory statement with your 2021 return indicating the date and amount of the Roth contribution and stating the amount of that contribution you recharacterized (3000) and what it was worth when transferred to the TIRA (3956). Box 1 of the recharacterization 1099R should show 3956.
3) Since you recharacterized a 2021 contribution in 2021, you also include the 3956 on line 4a of Form 1040, along with the gross amount converted (6963).
Topic Author
joetro29
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Joined: Sat Dec 05, 2015 10:10 pm

Re: Form 8606 help

Post by joetro29 »

Thank you all!
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