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morgaine300 · Oct 6, 2010, 04:40 PM

I hate when I have to get help on taxes, but there it is.

I did two things for 2009, and yes I filed for an extension and still left it to the last minute. :p Both of these things were done for 2009, but didn't get done until 2010. (Grr.) I cannot comprehend not getting some form or other to help me do the taxes for this. Not useful. (Note these two events are completely independent of each other and sorry if that causes confusion.)

One, I overpaid, so I got a return of the excess. So it's not taxable, but it does have about $500 of income that came with it. I called Fidelity about this and now that I'm looking at the stuff, I'm finding half the info he gave me was wrong and most of the rest just missing. So not trusting that.

Two, I recharacterized from a traditional to a Roth. That had quite a bit of gain that came with it (nice move, that :)) I'm having less trouble with this one. This is at ETrade and I just hate talking to them altogether.

I have both an 8606 and a 5329. I think I get that the 5329 is only for the extra income that came with the return of the excess, right? I know that's taxable and has a 10% penalty.

But I don't even comprehend what the 8606 is for. I understand the concept of basis. But the over-payment isn't going to be any basis cause I got it back before the deadline, so all this junk seems pretty useless. But do I still report this on this form?

And where the heck do I report the recharacterization? I was told that even though it's treated as though I did a Roth to start with, that I still have to report it.

ebaines · Oct 7, 2010, 06:06 AM

Morgaine: please clarify - did you make the initial overpayment into your IRA in 2009, or 2010? And did you receive the excess plus the earnings attributable to it in 2010? Was it prior to April 15 2010?

Form 8606 is to calculate how much of the conversion from a traditional to Roth IRA is taxable. Essentially you have to pay income tax on the value of the traditional IRA minus the amount of after-tax (nondeductible) contributions you have made to your IRAs over the years. When you get down to Line 25C that's how much incme you report due to the conversion.

morgaine300 · Oct 7, 2010, 12:57 PM

Hey ebaines,

What? That long post wasn't enough? ;)

I spent 3 hours last night reading tax instructions. I've discovered what the Fidelity guy was telling me was when I get the 2010 1099-R.

It wasn't a conversion - it was a recharacterization. I contributed that in 2009 and rech. To a Roth a few days into 2010. (Oh, and I recharacterized the entire contribution.) I'm getting the impression I don't have to report that at all, other than attaching that "statement of what happened" thingy. Turbo Tax is trying to put it on Line 15 of the 1040 but I don't think I'm supposed to be entering it until 2010.

The overpayment was also in 2009 and was returned shortly into 2010. So it was "on time," but did fall into 2010. I'm still pretty confused on what to do with this. The instructions are saying I don't have to do 8606 as it's treated as though I never did it, but that I have to report the earnings on 5329.

Where I'm now still confused, and cannot find, is whether I need to do that in 2009 or 2010. I got the thing in 2010, and the extra earnings in 2010, so perhaps I count it as 2010?? (But still do the "statement of what happened" thing.)

Thanks.

morgaine300 · Oct 7, 2010, 01:01 PM

P.S. I have no non-deductible contributions. The overpayment in 09 was an accident cause I got years mixed up. So that's the only one there was and it was returned. So I don't have any basis at all.

Is having both a recharacterization and return of excess getting confusing? If so, concentrate on the return of excess, cause I think I have the recharacterization figured out.

ebaines · Oct 7, 2010, 01:26 PM

Since the excess contrribution was returned before the due date of your tax return (April 15, 2010 plus extensions), you do not owe the 6% tax on the excess contriibution. All you have to report is the interest or earnings that you received for the contribution - you report that as ordinary income on your 2009 return. It's included in 2009 even though you actually received it in 2010, since it was caused by an excess contribution for 2009. The amount should be shown on the 1099-R you received.

You've probably already seen this, but just in case - pub 590 from the IRS covers this. See the section titled "Excess Contributions" near the end of:
Publication 590 (2009), Individual Retirement Arrangements (IRAs)

morgaine300 · Oct 7, 2010, 09:10 PM

Yes, I think I've been through that 590 numerous times. It's been my favorite reading material the past few weeks. :rolleyes:

I did finally talk to someone at the IRS this evening - had to go through two people cause the first lady just treated me like an idiot and was pretty rude. Second lady was very nice and seemed to know her stuff -- and I even discovered I don't have to pay anything on the earnings either cause I have an exception.

Oh, and I have no 1099-R and won't get them until 2011. That's part of the problem.

But what you've said does confirm what that other lady told me - that it goes on the year the contribution was actually made, and yes I do have to do the 5329 just for the earnings.

I think I finally have this all straigtened out. Thanks.