Form 8606 Line 6 & Adding Form 4972 Comments
Last year I did a rollover of 50% of my City’s Pension Fund to an IRA. I also had another IRA Fund established. In addition I retired and had a Deferred Compensation Plan to which I had been contributing. I have been filing an 8696 Form for several years and had a basis in my original Fund for much of that time. I am now asked on Form 8606 for the total of all my Traditional IRAS and need to figure out just how much that amount should be. Wen I added all three of those together I came up with a large total and with the tax package I am using it seemed that the tax program was questioning the amount I put into it so I am wondering just what that amount should be. Previously that amount was only the total of my original IRA. Now when I add all three together it is substantially higher. When I add the rollover amount plus the original it is more inline with the totals of the rollover + the original and the amounts added on line 15 & 16 of my 1040 Tax Form. If I add the Balance of my Deferred Comp then it seems to go sky high. So I am trying to decide of my Deferred Compensation is considered to be a Traditional IRA or if it falls into another category. Actually the only IRA that includes nondeductible contributions is my original IRA.
Thanks
Shirley
Permalink Submitted by Alan Spross on Fri, 2012-04-06 23:39
Line 6 should just the total of your traditional IRAs on 12/31/2011. If the deferred Comp funds are still in that plan, do not count them, as that is not an IRA. It sounds like you have only two IRA accounts.
More importantly, why are you filing Form 8606 for 2011? Did you make a non deductible traditional IRA contribution, take a distribution out of your IRA, or convert to a Roth IRA? Perhaps this is why the package is questioning you.
Permalink Submitted by Shirley Hall on Sat, 2012-04-07 17:48
I have to file a Form 8606 due to my original IRA having a total basis in a traditional IRA as I also took distributions from my original IRA account. There was no distribution taken from my new IRA account as it was a rollover but I did take a distribution from my pension fund to cover the RMD prior to doing the rollover. I also did a partial distribution from my 457b and then a follow up was done prior to 4/15/12 with another one due prior to 12/31/2012,
sch
Permalink Submitted by Alan Spross on Sat, 2012-04-07 18:19
OK, the 8606 is needed because you took an IRA distribution. It does not matter which IRA you took the distribution from because Form 8606 treats all your traditional IRAs as if they combined. The result of the pension plan rollover will be that your basis on line 5 will be a smaller % of your total value than if you had not done the rollover. Part of your distribution will be tax free, but a smaller part because of the rollover.
Permalink Submitted by Shirley Hall on Wed, 2012-04-11 17:27
Well I got that problem resolved however I ended up with another problem that reduced my refund by over $1,000. I received several 1099-R forms from where I had been working and one form showed total distribution together with some funds that were previously taxed. Initially I designated that as funds distributed as lump sum distributions for the taxable amount and chose one time year over t0 years for lump sum distributions. However it appears that seeing I also did a rollover of 50% of my Pension Fund in the same year it appears that was incorrect so am not eligible to file a Form 4972 and consequently I have a higher income, higher taxes and seeing my income goes over $85,000 I will have to pay more for my Medicare.
SCH
Permalink Submitted by Alan Spross on Wed, 2012-04-11 23:01
Yes, that is unfortuneate.
But the cost this year may be offset in future years by not having larger IRA RMDs that would also be subject to Medicare surcharges and possibly higher tax rates.
Why are you taking the 457 plan distributions instead of rolling it over to an IRA?
Permalink Submitted by Shirley Hall on Thu, 2012-04-12 02:38
I had enough to deal with this year without having to deal with another IRA Rollover. The savings in that account were considerable Besides I want to keep it there until I figure out just how to handle it and keep my income, taxes, etc down to a mininum. I am enrolled currently in an investment club to enhance my skills in investments for the future.
Considering the way the stock market is going and the news is affecting us lately I am avoiding any major changes right now.
Also, I am holding onto my 457(b) account until I see how my other IRA’s are performing and I can reduce the current 457b to a more manageable size. Seeing that I retired in the middle of last year I was told that I had to take a distribution by 4/14/12 so I opted to split the distribution between last year and this year, however considering the way the taxes went looks like it would have been better not to take the distribution I did last year and taken it all on 4/15/12 then my income would have been less for 2011 but much higher in 2012.
Thanks for all of your information and help.
sch