IRA basis

[Gretel]

My client put money into his annuity IRA but even before taking this deduction, has negative income. Company says they cannot convert to Roth so client is stuck.

I assume only non-deductible IRA's will give basis in IRA but a contribution where t/p actually doesn't have any tax benefit will not. Is this correct?

[Gretel]

On top again

Just not wanting to have this forgotten.

[Nashville]

Client Can Choose

Gabriele, I believe a taxpayer can elect to have any contribution non-deductible, even for a conventional IRA. Furthermore I don't think they even have to attach a statement, I think the indication of a non-deductible contribution on Form 8606 will suffice.

Might check with the instructions for Form 8606.

Obviously, since your client receives no benefit for the current year, and it is a conventional IRA, the election to treat this year's contribution as non-deductible should be a clear choice with no downside.

[ChEAr$]

form 8606

Gabriele, I believe a taxpayer can elect to have any contribution non-deductible, even for a conventional IRA. Furthermore I don't think they even have to attach a statement, I think the indication of a non-deductible contribution on Form 8606 will suffice.

Might check with the instructions for Form 8606.

Obviously, since your client receives no benefit for the current year, and it is a conventional IRA, the election to treat this year's contribution as non-deductible should be a clear choice with no downside.

I think was originally concocted just for this purpose, reporting non deductible contributions
elected by taxpayer to be non deductible. But of course it's use has evolved into many many times being the purpose for calculating portions of IRA's which are taxable.

So yes, fill out the 8606.

The headache comes when a client (not a long standing client, but one rather new) tells you
that his wife made all those IRA contributions since 1993 and never took a tax deduction for
them! GRRRRR!!

[Roberts]

1. Since you are talking gain / loss I'm assuming it is a variable annuity? Why would they buy a variable annuity within their IRA?

2. It is the annuity company or mutual fund company that should be able to provide a cost basis. It really shouldn't matter if it is before or after taxes as I've yet to see an IRA account form ask for that information. Call up the sales rep (if they put an annuity within an IRA, I'm sure they had a sales rep) and have them determine the cost basis for you.

3. By negative income are you saying they don't have earned income?

[Gretel]

3. By negative income are you saying they don't have earned income?

She has SE income and negative taxable income. I will follow the advise above and file form 8606 with the tax return. I didn't know you can do this in a case like this. Thank you.

[Gretel]

The headache comes when a client (not a long standing client, but one rather new) tells you
that his wife made all those IRA contributions since 1993 and never took a tax deduction for
them! GRRRRR!!

I just read the instructions for form 8606 trying to find if there is a limit how far I can go back filing this form for previously filed tax returns. I couldn't find this. I am thinking since this is not about changing the tax liability I can go back forever? I only have two years, but still want to know.