IRA after-tax "basis," the pro rata rule and Form 8606 (replay of webinar from February 13, 2024)
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- čas přidán 22. 08. 2024
- Replay of the webinar, Understanding Form 8606: IRA after-tax "basis" and the pro rata rule, from February 13, 2024
Webinar info packet - www.retirement...
DISCLAIMER: This video is only helpful hints and education. It is not specific tax, legal or investment advice. Before considering acting on anything you see in this video, first consult with your tax, legal or investment advisor. While the information expressed in this video is believed to be accurate, neither Andy Panko, CFP®, RICP®, EA nor Andy Panko EMC LLC make any guarantees to its accuracy. Neither Andy Panko nor Andy Panko EMC LLC shall be held liable or responsible for any damages or losses experienced by your use of this information
#TaxPlanning #Roth Conversion #RothIRA
I learned so much. Thank you for fantastic video and providing handouts! Watching this replay for my new accountant in the hopes it will help him since he wasn't familiar with form 8606 and how it relates to the pro rata rule! Very frightening!! Only kept him because he started my taxes and I was forced to file an extension. When I went to sign my return on April 13th, he asked me a question as to the backdoor roth and that put up a red flag. Wanted me to contact Fidelity over the weekend. Needless to say, I requested he file an extension since nothing would be accomplished in 2 days. As soon as my taxes are filed, I'm firing him!
I’m glad you found this helpful, thanks!
Nicely done, thanks Andy!
I appreciate your lectures a lot!! Very informative and useful!! More power to you and thank you for sharing your knowlwdge!!
Also, question about RMD. RMD means the gross amount coming out of the account . That's what will determine if you satisfy your RMD amount for the year? Ex.RMD is 20K, withheld is 2K the net check is 18K. In this scenario. The RMD for the year of 20K is satisfied? Thank you in advance for your reply!
People would be so much better off watching these videos rather than “top 10 stocks to watch for in 2024”
Definitely!
Thank you for creating this informative video! I’ve been searching to learn more about backdoor Roth conversions. So this is the best resource I’ve found.
I contributed to a traditional IRA on 4/10/23 with the plan to convert to a backdoor Roth. My husband filed the taxes on 4/12/23 before the conversion happened, showing the $6500 contribution to a traditional IRA. What happens with form 8606? Do I need it for the 2023 return? Since the contribution was made in 2024 (but for tax year 2023) are the numbers based on year end 2024? I have money in a rollover IRA so I am subject to prorata rule. If I roll the money over to a 401k plan before 12/31/24 will that “separate the coffee from the cream” for the 8606 on my 2024 return (assuming I don’t need to file it with my 2023 return)?
If you did a non-deductible traditional IRA contribution for 2023 (even if it was done in early-2024), that contribution should be reported as "basis" on Form 8606 of your 2023 tax return.
Yes, if you roll all pre-tax IRA money out to a non-IRA employer plan by the end of 2024 such that there will be zero pre-tax money in any of your IRAs as of 12/31/2024, there will be no pro rata of any conversion you do in 2024; the conversion will be just the after-tax basis and that won't be taxable (since it was already taxed as you made the contribution with already taxed money)
Great video Andy, thanks!
I've been trying to find something out and have had some difficulties, maybe you can help?... I have a defined benefit State government pension plan that allows me to contribute excess beyond the required contribution rate. I can contribute excess PRE-tax and excess POST-tax into the pension plan. I contribute both. I am able to roll the PRE-tax excess portion into my PRE-tax 401k at retirement next year, however, when I ask if I can roll the POST-tax portion into my ROTH 401k portion or Roth IRA I get mixed answers.... Some say yes and some say no!
Any idea if this is allowed as per the IRS? Thanks and love the show!
Sorry, but I'm not sure. I'm frankly not at all familiar with making contributions to a defined benefit plan and then moving those contributions over to a defined contribution plan. Hopefully the pension plan administrator can give you a concrete answer. I'm not aware of any overarching IRS rule that says you can't, but I really don't know (again, I've never come across this situation before, sorry!)
Love your videos Andy! But that coffee analogy falls apart when you realize you can separate out the metaphorical cream from the coffee.
Nit #1: The Pro Rata Rule actually applies to all types of distributions from retirement accounts or subaccounts, except for Roth IRAs. It doesn't just apply to Traditional IRAs, though that might be TMI in the context of this video.
Nit #2: You don't have to file a Form 8606 if you take a Roth IRA distribution where the distribution is Qualified.
Great info, but I have a question. 15 years or so ago I contributed to traditional IRAs until i realized Roth were more beneficial. Fast forward to 2024 and I cant contribute to a Roth due to income so I did a Backdoor Roth with zero knowledge on pro-rata rule. Now I have no idea if the contributions I made to the Trad IRA 15+ years ago were deductible or not, I dont have those tax returns, so I dont know what I have to do to ensure I pay the correct amount of taxes, any idea?
There is no way to know for sure without going through your old tax returns to see if you deducted the contributions or not. And if you can’t confirm prior contributions didn’t get a deduction at the time, you’ll have to assume they did. Which means you’ll have to treat them as taxable when you take them out. In other words, you can’t treat them as “basis”
Thanks for the wonderful video, which is super helpful! I have been searching for more information of pro rata rule and this explains it well.
I do have one unanswered question, appreciate your comment on it. Suppose I had pre-tax traditional IRA of 5,000, and I rollover it to 401k on March. Then I contributed after-tax 5,000 to traditional IRA on April 1st for the previous year's contribution (by when the pre-tax tradiitonal IRA account has 0 left), and did the conversion to ROTH in April. Will the pro rata rule kick in for this case, so that the 5000 conversion to ROTH is not entirely after-tax? Note that at the end of 2023, pre-tax traditional IRA has 5,000, while it will be 0 at the end of 2024. I tried to fill out 2023 and 2024 8606 forms, and it seems to be OK?
Since you'll be doing the conversion in 2024, it's the 12/31/2024 balance of your IRAs that matters for purposes of pro rata. If you don't put any additional pre-tax money into any of your IRAs before 12/31/2024, there won't be any proration on the $5,000 conversion since it will be converting just the $5,000 of after-tax contribution you will have just made
I am so happy I never put after tax money in any qualified accounts!
Question, what happens in this scenario ... Wife inherits her spouse's traditional IRA. Husband had filed 8606 for nondeductible contributions way back in the day and they were mixed with pretax contributions, but all forgotten by the time RMDs began so that the basis has never been "used". Discovering these 8606 contributions, can we begin filing them for her inherited IRA withdrawals from this point forward or would we have to go back through years of past returns and make corrections (if that's even possible)?
great video. but you never did answer what to do if you failed to do a 8606 on a roth conversion
Sir:
I did in plan Roth conversions in 2020, 2021 and 2022 in my 457 B. I did not complete the form 8606 on my tax returns. In 2022 I deducted the basis on my tax return from the Roth conversion due that I didn’t have any IRA accounts. Did I need to submit the 8606 forms for those three years and revised the 2022 tax form . I also I did transfer my ROTH IRA ACCOUNTS for me and my wife and rollovers from my pension plan at work and 457B from work in 2023. Any way that you can help me to complete my Income tax properly and see what I need to do? Your kindly help will be appreciated.
Sincerely
Humberto Serradell
8606 isn't needed when the conversions were within a non-IRA employer plan like your 457b. The 457b plan administrator is responsible for doing the proper record keeping of conversions, basis, etc. within the 457b, and they then report all of that accordingly at tax return time on the 1099-R they send you. None of that requires an 8606 (which is only for IRAs).
Me and my wife deposited to our separate IRA $7500 each but after doing our return only $1650 for me and $1630 for her was allowed as deductible to our agi. Does the remaining $11,720 has to be reported as non deductible contribution in form 8606?
@@ardybat Yes