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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121341  
Subject: Re: 8606 Cost Basis Mystery Date: 2/15/1999 2:21 AM
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[[Can you explain where the misunderstanding was in this "mystery"?

Is Ken saying that the basis is spread over 4 years? If so, it makes sense. In my
previous post I stated that I:]]

Sorry...I can't find that prior post...and there has been so many...I can't remember the issues. But I can tell you that you do NOT spread out your basis over 4 years.

[[ 1. Converted a traditional IRA to a Roth conversion IRA. $11,900 total w/ a
basis of $8000.]]

So your taxable conversion is $3,900, and you'll spread that amount over the 4 year period.

[[ 2. Took a 401K, rolled it to a rollover IRA and then converted that into the
same Roth conversion IRA. About $12,100 in that w/ no basis.]]

So now your TOTAL IRA amounts to $24,000 with a basis of $8k...and a taxable conversion of $16k. You would spread this $16k over the 4 year period (assuming a conversion that took place in 1998).

[[ Neither of these were partial conversions.]]

But if you converted them at different times, they were in fact BOTH partial conversions. It's just that now, after the year is done, it has turned into an entire conversion, and the partial conversion rules are moot.

[[ Turbotax calculated a basis of $2,599 (in lieu of the $8000 I expected). If this is
the basis for 1998 and I get more of my basis allocated to me in upcoming years
that is fine w/ me. But is Ken saying that this is the case (that my basis of $8,000
will be spread out over 4 years (just like the taxes on the conversion are)?]]

What you are trying to do is to tell TTax (I'm guessing) that you made TWO separate conversions, and TTax is trying to spread your basis.

Tell TTax that you had ONE conversion, with a FMV of the IRA of $24k and a basis of $8k. I'll just bet you that it computes a taxable conversion of $16k. When you feed it information in two steps, it treats it as partial conversions...which they were at the time.

[[ Also, are taxes that are filed electronically less likely to be audited???]]

I personally believe that they are MORE likely to be audited.

TMF Taxes
Roy
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