8606 Line 2 / Line 14 Partial Roth Conversion

[scottbfreeman]

The 8606 for my 2022 return does not reflect an basis on line 2 and 8606 for my 2021 return indicates an amount on line 14. I made a partial Roth conversion from a Traditional IRA in 2022.

Should the amount on Line 14 from 2021 be entered as the basis on Line 2 of the 2022 form 8606?

Thanks in advance for any replies

[fanfare]

"Should the amount on Line 14 from 2021 be entered as the basis on Line 2 of the 2022 form 8606?"

You have to do that.

@scottbfreeman 

[scottbfreeman]

Thanks. Is there a reason that TurboTax 2022 does not carry this forward when importing information from the 2021 tax file?

[dmertz]

TurboTax does carry this information forward on the IRA Information Worksheet, but it's all to easy to cause TurboTax to silently delete this information after transferring in from the previous year's tax file.  All it takes is mistakenly answering No when TurboTax asks if you made nondeductible contributions for a prior year and TurboTax will remove the information without any indication to the user that it has done so.  If that happens, you must add it back manually or start your tax return over completely and transfer in again.

[scottbfreeman]

Although I understand the last response, it does not seem correct for TTax to characterize a Roth Conversion as nondeductible contribution. Is there a reasonable explanation that can be placed on an amended return in Part 3 to avoid an IRS fine?

[dmertz]

Lines 2 and 14 reflect nondeductible traditional IRA contributions.  Basis in nondeductible traditional IRA contributions affects the taxable amount of any traditional IRA distribution, including a Roth conversion.

When your Roth conversion is partially taxable and partially nontaxable due to having basis in nondeductible traditional IRA contributions, for the application of ordering rules on eventual Roth IRA distributions, Roth conversions have two parts.  The part of the particular Roth conversion that was taxable when converted is distributed before the part that was nontaxable when converted.  This ordering is relevant if you have not yet reached age 59½ and it has been less than 5-years since the beginning of the year in which you did the Roth conversion.

[scottbfreeman]

Thank you for the reply. I'm past 59.5. When you refer to "nondeductible traditional IRA contributions" is this the same as contributions that were taxed before they were put into the Traditional IRA?

I am going to file an amended return that reflects the taxed basis of the Traditional IRA. It decreases my tax liability for 2022. Is there an acceptable reason for filing an amended return for this reason?

[dmertz]

Nondeductible traditional IRA contributions are those for what you did not take a deduction and instead reported in box 1 of Form 8606, or came to be in the traditional IRA from rolling over after-tax funds from an employer's qualified retirement plan like a 401(k) (which would be includible on line 2 of Form 8606 the next time Form 8606 Part I is required to be filed for some other reason.  Lines 1 and 2 of Form 8606 are summed on line 3, are applied proratedly to traditional IRA distributions.  Basis that remains appears on line 14 to carry forward to line 2 of the next Form 8606 that you file.

If your originally filed 2022 8606 failed to include on line 2 the amount from line 14 of your previously filed Form 8606 (2021 in this case), yes you should ament to correct the 2022 Form 8606.  Failing to prepare the Form 8606 correctly does not mean that the basis did not apply to the Roth conversion, it means that you lose the credit for that basis and your basis is still reduced going forward.  You are not permitted to selectively choose the years to which the basis applies.

[fanfare]

"it means that you lose the credit for that basis and your basis is still reduced going forward. "

If this happens and you file without Form 8606, in the future, your prior years basis is not going to show any reduction when it is used.

@dmertz 

[dmertz]

"If this happens and you file without Form 8606, in the future, your prior years basis is not going to show any reduction when it is used."

@fanfare , that's true, but incorrect reporting doesn't mean that the basis wasn't reduced.  The IRS might not catch the incorrect basis shown on a future Form 8606, but it would still be wrong.  It's the tax code, not the mistaken reporting on From 8606, that dictates how the basis is applied.