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Background:

  1. I gave all my W2s and 1099s for year 2020 to my tax preparer in March/April 2021.
  2. He did the calculation and told me that I can contribute $4,270 to Traditional IRA and $1,730 to Roth IRA.
  3. I opened new Roth IRA and Traditional IRA accounts in Fidelity and contributed accordingly.
  4. Also, did the conversion of balance($4,270) from Traditional IRA to Roth IRA by choosing the option "I don't want to pay taxes now".
  5. Due to my ignorance, I did tax filing for year 2020 without including 5498 forms generated by Fidelity.

I think these screenshots explain more about what I am talking about.

Screenshot of 5498 form for Roth IRA contribution

5498 form for Roth IRA contribution

Screenshot of 5498 form for Traditional IRA contribution

5498 form for Traditional IRA contribution

Screenshot of Traditional IRA to Roth IRA conversion

Traditional IRA to Roth IRA conversion

What are my options now?

  1. Can I fix it now?
  2. Because IRS doesn't know about these accounts and the contribution amount is already after tax amount, Can I treat this as regular brokerage account?

1 Answer 1

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There's nothing to fix. Forms 5498 are informational reports and you do not need to include them with your tax return. In fact, they're usually unavailable by tax due date because you can still contribute to the IRA by the tax due date and attribute the contribution to the prior year (which is exactly what you did, if I understood you correctly).

However, you also said that you did a conversion of your traditional IRA into Roth IRA. I assume you intended to execute a "backdoor" Roth contribution, meaning the traditional IRA contribution was supposed to be non-deductible for tax purposes. I.e.: you shouldn't have claimed tax benefit for it. You might need to check your tax return to confirm, and if you did claim tax benefit for it - then the conversion would be taxable and you'd add the amount you deducted in 2020 back to your income in 2021. Any gains between the contribution and the conversion will also be added back to your income.

You can check whether you deducted that contribution by looking at your form 1040 Schedule 1 Part II Line 20.

For year 2021 you'll need to report that conversion using form 8606.

The IRS knows about these accounts. Form 5498 is filed with the IRS by the custodian. You can still treat it as regular brokerage account if your custodian allows it, when it comes to investment management and choices, of course. The withdrawals and contributions should be done very carefully and in full consideration of the tax rules regarding IRAs.

You should also remember that from the IRS perspective you only have one IRA, which may be split among multiple different accounts across multiple different custodians. This is important when considering the backdoor Roth conversions like the one you did.

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  • Thank you for the detailed answer. Did you mean Schedule 1 Part II Line 19 instead of 20. Here is the screenshot and I didn't deduct that amount: imgur.com/ug7ug6N Because I didn't deduct the amount, there is nothing needed from my side. Is that right?
    – javanoob
    Commented Oct 19, 2022 at 5:31
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    @javanoob yes, sorry, I was looking at the 2021 version. It was line 19 for 2020. As part of your 2021 tax filing you would need to report this conversion using form 8606.
    – littleadv
    Commented Oct 19, 2022 at 5:48

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