Here's the scenario - and I appreciate any guidance you can provide me - New Client.
My issues are 1) How to report on 1040, line 15, and 2) How and what to report on Form 8606
Taxpayer, age 68, single, in March 2009 took $ 100,000 in distributions from traditional IRAs ( 2 $ 50,000 distributions from 2 different funds) with $ 30,000 ( 2 $ 15,000's) in FWT. So net it was $ 70,000. His total IRAs are worth almost $ 1 million. I spoke to him about converting at a late age - but he wants to do it - he's been doing it now for a few years. His argument is the tax rate will go up, so he wants to pay taxes now at a lower rate.
Good part of the IRA total came from employer 401(k) -prior years - where he transferred in BOTH employer contributions PLUS his deferral. Yes I know - once he transferred into IRA he lost the advantage of his portion.
His 2009 AGI WITHOUT even considering the $ 100,000 IRA distribution is $ 161,000 because in the fall of 2009 a corporate stock he owns (Wyeth was sold to Pfizer) he got a buyout distribution of $ 115,000. No sale of stock - just the cash distribution.
I recognize that he must "recharacterize" it - meaning he must return it to the Traditional IRAs. But - how? He's only got $ 70,000 to work with - he must now come up with $ 30,000 of his own to transfer back? So he's got a $ 30,000 FWT credit on the 2009 return.
Now - what sense does it make to physically transfer the money back - when in 2010 he can pull it back out unrestricted. Can't apply it to 2010's distribution?
Anyway - my issues as I stated above are 1) 1040 proper reporting and 2) Form 8606 reporting.
What a way to start tax season.
My issues are 1) How to report on 1040, line 15, and 2) How and what to report on Form 8606
Taxpayer, age 68, single, in March 2009 took $ 100,000 in distributions from traditional IRAs ( 2 $ 50,000 distributions from 2 different funds) with $ 30,000 ( 2 $ 15,000's) in FWT. So net it was $ 70,000. His total IRAs are worth almost $ 1 million. I spoke to him about converting at a late age - but he wants to do it - he's been doing it now for a few years. His argument is the tax rate will go up, so he wants to pay taxes now at a lower rate.
Good part of the IRA total came from employer 401(k) -prior years - where he transferred in BOTH employer contributions PLUS his deferral. Yes I know - once he transferred into IRA he lost the advantage of his portion.
His 2009 AGI WITHOUT even considering the $ 100,000 IRA distribution is $ 161,000 because in the fall of 2009 a corporate stock he owns (Wyeth was sold to Pfizer) he got a buyout distribution of $ 115,000. No sale of stock - just the cash distribution.
I recognize that he must "recharacterize" it - meaning he must return it to the Traditional IRAs. But - how? He's only got $ 70,000 to work with - he must now come up with $ 30,000 of his own to transfer back? So he's got a $ 30,000 FWT credit on the 2009 return.
Now - what sense does it make to physically transfer the money back - when in 2010 he can pull it back out unrestricted. Can't apply it to 2010's distribution?
Anyway - my issues as I stated above are 1) 1040 proper reporting and 2) Form 8606 reporting.
What a way to start tax season.
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