Inherited IRA/Traditional IRA and Backdoor Roth Conversion
I have an IRA that I inherited from my mother but currently have no other IRA funds (I do have some money in a 457 deferred compensation plan with my employer – and a pension – and I am still working).
I do not qualify for a deductible IRA or a ROTH IRA.
My plan is to open a non-deductible traditional IRA for $6,000 before April 17, 2012 (nothing like waiting until the last minute – I assume opening one on the internet and authorizing an electronic transfer from my checking account will still make the deadline) and then convert it to a ROTH as long as the inherited IRA will not have to be included in calculating any gain on the conversion. Am I correct that the inherited IRA is not included in the pro rata calculation of any gain on the conversion of the traditional IRA to a ROTH?
I already filed my 2011 taxes – and got my federal and state refund checks back – am I correct that as long as I open the traditional nondeductible IRA before midnight on the 17th of April, 2012, it will count for 2011? In other words, I did not have to open it before I filed my taxes, did I? Someone thought I did. That sounds wrong to me but who ever said tax code made sense.
And then I will have to file an amended tax return for 2011 so I have a Form 8606 showing what I did? I have 3 years to do that (I am not going to wait for the last minute – I am going to do it promptly as soon as I can see that this went through with teh custodian but I think I have 3 years).
And this conversion will be reported in 2012 when I do my 2012 taxes?
And that this conversion does not have to take place before April 17, 2012?
And then later this year, I can open a non-deductible traditional IRA for 2012 – and convert it to a ROTH in 2012 and report all of that on my 2012 taxes? Do I have to wait any length of time to convert the IRA contribution for either 2011 or 2012? Do I have to wait until 2013 to convert my 2012 ROTH? Should I wiat until 2013 to convert? Will converting 2 of these in 2012 make a mess of the paperwork for the IRS?
Any other advice on how to handle this? Or should I just forget about 2011 and do it for 2012? I would really like to sock away $12,000 in a ROTH IRA while I have the cash.
You were terribly helpful on this board when I inherited the IRA from my mother.
Thanks!
Permalink Submitted by Alan Spross on Mon, 2012-04-16 01:25
Most of your impressions are correct.
1) The inherited IRA does NOT count when completing Form 8606 for your own IRA, or in the pro rate calculations when you convert your own TIRA.
2) You do not have to complete a 1040X – wait until this year’s tax rush is over and then send in a stand alone 2011 8606 reporting your non deductible contribution – assuming the custodian accepts your 2011 contribution.
3) You did not have to make the 2011 contribution before you filed your tax return.
4) The conversion will be reported on your 2012 tax return – if you do two conversions they are added together on your 2012 8606 along with your 2012 non deductible contribution
5) Your conversion can take place anytime in 2012, does not have to be done by 4/17 – make sure your contribution is accepted and then convert
6) Same for your 2012 contribution – there is no waiting period to convert after your 2012 contribution
Really, all you have to worry about is getting that 2011 contribution into your TIRA by the deadline. Your account must be opened in time, but the funding is problematical. You might be safer taking your check to the PO and getting it postmarked by the 17th. The postal rule applies such that a contribution postmarked by 4/17 is considered to meet the deadline regardless of when the custodian receives it. You might call the custodian to make sure they honor this rule.
Permalink Submitted by Paula Etting on Mon, 2012-04-16 02:41
The website of the custodian says I can open an account on line and as long as I do it before 4 pm on 4.17 and use an electronic bank transfer, the trade date will be 4.17. So looks like it will work! Thanks!