Roth conversion and nondeductibe IRA

[Guest Bob Monte]

Excuse this if this is a duplication.

Start with a regular IRA party non-deductible. Now take a 401-k amd roll it into a new IRA. Take the new IRA and convert all of it and only it into a Roth (this actually already done in 1998 and spread 4 years).

Is the entire conversion the correct taxable amount or must all the IRAs be totalled and the basis % figured with the result being that some of the conversion is non-taxable just like any other distribution. I believe this is correct but I have seen examples that hint otherwise and show a basis in one year and not another in showing consequtive distributions and conversions so I am unsure. Can this 401-k rolover and conversion be treated in isolation since it stayed intact and was never comingled or must the non-deductible basis be considered??

I see in other messages that any 1998 non-deductible contributions cannot be changed into Roth but I assume that I can amend 1998, 1999 and 2000 to correct the conversion amount (if indeed the basis needs to be considered).

[John G]

Since the prior amount was rolled into the IRA, your conversion math will be based upon ALL your IRA assets in all accounts and all locations. You can not cherry pick specific assets to convert. Everything is done on a percent basis of the combined total IRA assets. In your circumstances, it sounds as if some of your IRA should not have been taxed when converted.

Given your complex situation, I recommend you find a qualified local tax accountant familiar with rollovers and conversions to assist you. It is easy to make some mistakes.

[Guest Bob Monte]

Unfortunately, there is no way to know a person's expertise. This mess was created by a so-called professional. As I mentioned, this was done in 1998 and the "income" spread over four years so I am reporting the last portion this year. Instead of refiling amended returns for all three previous years, could I just adjust this year's to reflect the correct, lower value with an explanation??

What would happen if I had not discovered this for a few more years and it was too late to file amendments??

This professional also failed to advise that it was stupid to be making non-deductible contributions in 1998 and 1999 when I could have been putting it into the Roth to better advantage.

If you want something done right .........

[John G]

It sounds like your tax preparer incorrectly handled your taxes. From my perspective, I think the onus to file corrections for prior years falls on the preparer. You should be made whole, atleast for the screw up in the conversion part. The choice of regular vs Roth is not so clear if you did not or could not take the decution.

If your tax preparer is a major vendor, take this matter up with a supervisor. If it is a single accountant in private practice, you may have a problem with "motivation". An ethical practictionare would volunteer to correct the mistakes.

I hope Barry and the other accountants will comment on this issue. Limited or flawed tax preparer expertise is a problem that comes up too often.

[Guest Bob Monte]

I have already moved away from this preparer (for other reasons) and this is the only reason that this error was caught. I doubt if he would be thrilled about correcting all three returns for free and I guess I would have to explain it all to him since he obviously does not know it. So I don't know if I want to bother dealing with him anymore. The error hurt me then so I will get money back with the amended returns. Not a lot to be really worth filing at all but if I don't then I'll be wrong forever and subject to the IRS disallowing something in the future. What a shame, the impact is really small due to the values involved.

Thanx for the help.

As for qualified help: without doubt things are more complex than ever. I don't know if it is still done but I think MONEY used to give a bunch of preparers, CPAs and others a sample complex return and no one ever got it right. Some were pretty close and others were thousands off. .. and that was before it got even more complex. So what are the real chances of having a return done 100% right no matter who you go to. This is not an attack on preparers but on the complexity of the tax laws. And way too complex for even the above average person

[JAMES PATRICK]

Just a response to the bit about Money giving out a return and finding that no one got it right. Because they are journalists do you believe "they" knew what the "right" answer was? Or is it that their "expert" never makes mistakes!

There is a Tax Court that is needed to settle disputes between the IRS and tax payers. Sometimes the IRS wins , sometimes they lose. Sometimes Courts in different sections of the country come to totally different answers, so the "correct" answer depends on where you live, not who does your taxes.