Post tax IRA Contributions
My wife’s IRA is worth $300k. From 1994-2013 she contributed $65k to her IRA with post-tax funds. She has not filed IRS Form 8606.
1. Can she transfer the $65k to her Roth IRA?
2. Should we file IRS Form 8606 re the $65k post-tax contributions with our next tax return?
Thank you,
John Harrington
Permalink Submitted by Alan - IRA critic on Thu, 2022-04-28 17:20
She would have to file an 8606 for each year a non deductible contribution was made, starting with 1994. Since the forms are cumulative, they need to be done in order. If any distributions have been taken in the last 3 years, those returns would have to be amended for a refund because IRA basis cannot just be saved up and used when desired. She could then apply the pro rata math on the 2022 8606 used to report the conversion which will make the conversion partially non taxable. Again, all conversions and distributions are taxed on a pro rata basis and the basis cannot be applied first. Since her basis (65/300) is around 22% of the total value, only 22% of the amount she chooses to convert will be non taxable after filing these 8606 forms. If she only convert 65k, about 51,000 would be taxable.
There is one possible exception. If she is working and has a current 401k that accepts IRA rollovers, she could roll her pre tax IRA balance (235k) into the 401k, then she could convert the remaining 65k tax free. This avoids the pro rata calculation because after the rollover to the 401k, her IRA would be 100% basis.