Error in prior submission

From: "Steve Foulks" <steve_foulks@up.bresnan.net>
Subject: Error in prior submission
Date: Thu, 28 Jan 1999 01:33:20 -0500

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Jeff,

I submitted the following answer yesterday and it is incorrect, so you
should not publish it.  I will send you a correction:

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>From: "Peter & Karen Diamond" <diamond@vsi.net>
>Subject: Roth IRA Conversion
>
>Hello,
>I have been looking at Form 8606 for calculation of taxes on conversion to
a
>Roth IRA.
>I have a Simple IRA and I had a traditional IRA funded entirely by post-tax
>dollars that I converted to a Roth IRA.

If when you say Simple IRA, you mean SIMPLE IRA, it is not possible to make
post tax contributions to a SIMPLE.  The form isn't meant to be  used for
SIMPLE IRA's, so any data you have on the scheduled related to a SIMPLE IRA
shouldn't be there.

>When I am done with the form, it leaves me with a basis for my traditional
>IRA, but I don't understand what this is the basis of, since I no longer
>have any traditional IRAs.  Is it the basis for the Simple IRA?  The whole
>thing seems strange since I have to count my Simple as a traditional IRA
>when the form never asked me to do that before.
>Any information on this would be appreciated.
>Thanks.

I also did a conversion of my whole traditional IRA, and there is no basis
on line 12 for the Traditional IRA.  If you do have a number on that line,
you have made an error.  On line 17 is reported the amount that you must
include in taxable income each of the 4 years, for doing the conversion.   I
think you need to carefully prepare the form.

Forget the form for a moment.  Conceptually you are taking the value of your
IRA's at the time on conversion and subtracting any previously taxed amounts
from this value (nondeductible contributions).  You take this result and
divide it by 4 (if you chose to spread the tax payments over 4 years) and
include this amount on line 15b of 1040.   I often find the forms to be very
confusing.  On average data only appears on 11% of the lines on tax forms.
The rest of the lines are for those oddball quirky issues that very few
taxpayers actually face.  If you have some idea of the expected result,
before you get started, you will know when you have completed it correctly.

Steven M. Foulks, CPA, CFP, PhD       
http://www-instruct.nmu.edu/business/sfoulks/
mailto:steve_foulks@up.bresnan.net


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