reclassification of Roth IRA from 2008 to 2009

I contributed $5000 to a Roth IRA in 2008 (under my name) and contributed $5000 (under my wife's name) to a traditional IRA in 2008. Because my income was over $159k, the HRBlock site TaxCut suggested that I reclassify my Roth contribution as a 2009 contribution. I have followed the necessary paperwork through Fidelity and this is complete. I had a small loss so the total amount that got reclassified for a 2009 contribution was $4667. How do I handle these in my tax return through HRBlock site TaxCut?

Yahtzee,

First the easy part: Your spouse's TIRA contribution will be reported on form 8606 because this is an after tax IRA contribution. I would have suggested that you have Fidelity reclassify your 2008 ROTH IRA Contribution to an after tax TIRA, and you would report this on form 8606 too.

Now the more difficult part: It sounds like Fidelity is your IRA Custodian, and they have reclassified your 2008 ROTH IRA contribution as a 2009 ROTH IRA contribution. This leaves you with no 2008 IRA contribution.

Because you had no IRA contribution for 2008, you had a taxable investment account at Fidelity. Next January Fidelity will send you a 1099-B showing the sale of your taxable investment. If you owned this investment for one year or less, it will be reported on your 2009 tax return, Schedule D as a short term capital loss. If you owned the investment for more than one year, it will go on your 2009 Schedule D as a long term capital loss. This would not go on your 2008 tax return.

You could ask H&RB how to report their recommendation.

Yahtzee,

First the easy part: Your spouse's TIRA contribution will be reported on form 8606 because this is an after tax IRA contribution. I would have suggested that you have Fidelity reclassify your 2008 ROTH IRA Contribution to an after tax TIRA, and you would report this on form 8606 too.

Now the more difficult part: It sounds like Fidelity is your IRA Custodian, and they have reclassified your 2008 ROTH IRA contribution as a 2009 ROTH IRA contribution. This leaves you with no 2008 IRA contribution.

Because you had no IRA contribution for 2008, you had a taxable investment account at Fidelity. Next January Fidelity will send you a 1099-B showing the sale of your taxable investment. If you owned this investment for one year or less, it will be reported on your 2009 tax return, Schedule D as a short term capital loss. If you owned the investment for more than one year, it will go on your 2009 Schedule D as a long term capital loss. This would not go on your 2008 tax return.

You could ask H&RB how to report their recommendation.

What would the advantage of a having my wife's TIRA reclassified to after-tax? So I would get the tax deduction on it? Isn't my income too high for any of the deductions to matter?

Yahtzee,

An After Tax TIRA is when you pay income tax on your contribution.
These contributions are not deducted on your 1040.

A Pre-Tax TIRA is when you deduct the IRA contribution from your other income. This type of contributions are deducted on your 1040.

When someone's income is too high to allow a ROTH IRA contribution and they can not deduct the TIRA contribution, the option to make an After Tax contribution to a TIRA is still available. You and your wife appear to fit this category.

Yes, your Modified Adjusted Gross Income (MAGI) was too high for the deduction. Now you pay the tax on the contribution to your wife's TIRA. Besure to complete form 8606 for this contribution.

I think the same thing should have been done with your 2008 ROTH IRA contribution. The 2008 ROTH IRA contribution should have been changed to a 2008 TIRA contribution. You would then report this contribution on form 8606.

Let me try this once more....I made above an income level that would allow for any contribution to a Roth IRA. I have had my 2008 $5000 contribution reclassified as a 2009 contribution as I don't anticipate to make as much this year. For my 2008 returns am I to not include any reference to a Roth IRA since I will be including it for 2009?

The same goes for my wife's 2008 TIRA contribution. Since I made above a certain income amount I didn't receive any tax deduction on that $5000. I am having it reclassified as a 2009 contribution to take advantage of that tax deduction. Do I not report it at all for 2008?

EDIT: Both my Roth IRA and my wife's TIRA lost money so there were no gains on either account.

Let me try this once more....I made above an income level that would allow for any contribution to a Roth IRA. I have had my 2008 $5000 contribution reclassified as a 2009 contribution as I don't anticipate to make as much this year. For my 2008 returns am I to not include any reference to a Roth IRA since I will be including it for 2009?

The same goes for my wife's 2008 TIRA contribution. Since I made above a certain income amount I didn't receive any tax deduction on that $5000. I am having it reclassified as a 2009 contribution to take advantage of that tax deduction. Do I not report it at all for 2008?

Yahtzee,

Your action of changing a 2008 IRA contribution to a 2009 contribution is one way to handle this situation.

However this leaves you and your spouse with no 2008 contribution to your
respective IRAs. You and your spouse could make an an After Tax contribution to a TIRA. While there is no deduction for this type of IRA contribution, it does allow for tax deferred growth. There is no deduction for contributions to a ROTH IRA.

In 2010, regardless of your income, you could make Conversions from your TIRAs to ROTH IRAs. You would only have to pay tax on the tax deferred amounts that you convert.

[qipte]EDIT: Both my Roth IRA and my wife's TIRA lost money so there were no gains on either account.[/QUOTE]

Gains and losses in an IRA are not reported on our tax returns.

You can learn more by reading IRS Pub 590, Individual Retirement Arrangements: http://www.irs.gov/pub/irs-pdf/p590.pdf

Yahtzee,

Your action of changing a 2008 IRA contribution to a 2009 contribution is one way to handle this situation.

However this leaves you and your spouse with no 2008 contribution to your
respective IRAs. You and your spouse could make an an After Tax contribution to a TIRA. While there is no deduction for this type of IRA contribution, it does allow for tax deferred growth. There is no deduction for contributions to a ROTH IRA.

In 2010, regardless of your income, you could make Conversions from your TIRAs to ROTH IRAs. You would only have to pay tax on the tax deferred amounts that you convert.

[qipte]EDIT: Both my Roth IRA and my wife's TIRA lost money so there were no gains on either account.

Gains and losses in an IRA are not reported on our tax returns.

You can learn more by reading IRS Pub 590, Individual Retirement Arrangements: http://www.irs.gov/pub/irs-pdf/p590.pdf[/QUOTE]

I understand that but I am still not clear if I have to actually list my contributions on my 2008 return or not.

Yahtzee,

Do not report your 2009 IRA contributions on your 2008 tax return.

Ask Fidelity how they are reporting your 2008 contributions/investment account.
Most likely this will be 2 taxable accounts, one for you one for your wife.
Because you closed these taxable accounts in 2009, you will report the gain or loss on Schedule D when you file your 2009 tax return.

You should check your 2009 IRA contributions. If this was from the taxable accounts as suggested above, you most likely have a loss in those accounts. You may have to add some money to bring your 2009 contributions up to $5,000 each.

- Ask Fidelity what type of account you had from the date you made your then IRA contributions until you asked to have these made a 2009 IRA contributions.
- Ask how much did you contribute to your 2009 IRAs.