TT 8606

[naviator2003]

Hello everyone! I have an issue with how TT online filled out Form 8606 for my spouse for 2021 tax year.

I made a non-deductible contribution to her Traditional IRA ($,6000) in 2022 for tax year 2021 (made before April 18, 2022). I converted the money in 2022 to her Roth IRA ("backdoor Roth"). While filing my taxes online for tax year 2022, TT online says I reported my spouse's IRA basis as $6,000 for 2021 (also appears this way in Form 8606 for my spouse in my 2021 return). The problem is I never got the option to input an IRA basis for 2021 for my spouse's accounts (I assume this was because I contributed said money in 2022, not 2021). I just tried to amend my 2021 return to see if I missed this. Again, the page never appears to enter the basis (it does appear for my accounts though: I made non-deductible contributions in tax year 2021 and converted to Roth in 2021).

Am I doing something wrong here? Do I need to amend my 2021 return to reflect the correct basis for my spouse's IRAs, even though the transactions all occurred in 2022? Or when TT online asks for an "explanation" when I change the basis, can I simply say "TT put this value in; I was never given the option to"?

Hopefully this wasn't confusing. Any help is appreciated!

[fanfare]

" TT online says I reported my spouse's IRA basis as $6,000 for 2021 (also appears this way in Form 8606 for my spouse in my 2021 return). "

all sounds correct to me. why do you want to change anything?

[DanaB27]

No, it doesn't seem you need to amend your 2021 tax return, it seems you reported your spouse's basis on her 2021 Form 8606 ($6,000). 

If you entered your spouse's nondeductible traditional IRA contribution with the steps below on your 2021 tax return then you reported your spouse's basis on your 2021 tax return correctly. Since she didn't convert the money in 2021 she will have the basis on line 14 of her 2021 Form 8606 to carry to 2022. 

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA” for your spouse
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount your spouse contributed for 2021
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. Enter your  basis in the Traditional IRA from your 2020 Form 8606 line 14 (if you had a basis in the prior year)
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter her conversion on your 2022 tax return:

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your spouse's 1099-R (make sure you select that it is her Form 1099-R)
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" since your spouse had any nondeductible contributions in prior years.
7. Answer the questions about your spouse's basis from line 14 of your spouse's 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[naviator2003]

@fanfare @DanaB27 

Apologies, I should have included the following information:

My spouses total basis for IRA's was greater than zero on December 21, 2021 (all of which were deductible contributions), before I contributed the non-deductible contribution (much greater than $6,000). As such, I assume the basis that should have been reported in my 2021 return should have been the value of the accounts on December 21, 2021. However, TT online did not give me the option to input that value. Instead, it assumed my basis was only the $6,000 contributed in 2022.

[DanaB27 · Accepted solution]

No, the basis is not the value of the traditional IRA on December 31, 2021. The basis is only the nondeductible contributions she made that were in the traditional IRA. If she had nondeductible contributions before 2021 (had a basis) then you will enter it on your 2021 return during the IRA contribution interview (steps 8 and 9 in the instructions above). But she should have Form 8606 from prior years when she made the nondeductible contributions.

If she failed to file Form 8606 in prior years, she will need to file them. She might be able to file Form 8606 without amending the return. Please see Prior years Form 8606 and Instructions for details.

There can be a penalty of $50 for not filing Form 8606 on a timely basis, but the penalty can be waived if you can show reasonable cause for not filing. Please see this information for suggestions regarding reasonable cause.

Line 4 of your spouse's 2021 Form 8606 is correctly blank since she didn't take a traditional IRA distribution or make a Roth conversion in 2021. Line 4 of the 2021 Form 8606 will only have an entry if there was a distribution or conversion in 2021.

[Edited 3/15/2023 | 4:49 am PST]

@naviator2003 

[naviator2003]

@DanaB27 Ah, gotcha. Would help if I read the instructions (face palm). We only made nondeductible contributions in 2022: $6,000 for tax year 2021 (made 25JAN22), $6,000 for tax year 2022 (made 25JAN22, same day).

I confirmed in TT Online that I correctly inputted all $6,000 of her 2021 nondeductible contributions were made between January 1, 2022 and April 18, 2022. However, looking at my 2021 return, Form 8606, here are the entries:

Line 1: $6,000 (correct)

Line 2: $0 (correct)

Line 3: $6,000 (correct)

Line 4: (blank) (incorrect; I made the contribution between January 1, 2022 and April 18, 2022)

Line 14: $6,000 (total basis for 2021 and earlier years; is this because my contributions were for tax year 2021, despite making the contributions in 2022?)

[AmyC]

Yes your 2022 contribution for 2021 is counted on line 14 for your total basis. Line 14 is correct and will track your basis. Each year you need to file the 8606. As long as line 14 has the correct numbers, you are in good shape. 

[naviator2003]

@AmyC To clarify, "...your 2022 contribution for 2021 is counted on line 14 for your total basis..." for my 2021 Tax return?

[AmyC]

Let me put this a different way since you followed up and I may not know the whole story! Your 8606 each year will track how much money you have already paid taxes on through that tax year. This means your 2022 contribution to 2021 counts on the 2021 8606 as income that has been taxed which gives you a basis of already taxed money. 

Your 2022 8606 will have $12,000 on line 14 as you have put in that much already- that I know about, it could be more! If you have contributed in prior years, the line 14 should be larger and include any other amounts previously contributed.

Several times, Congress has introduced taxing the interest when you take it out. The 8606 would make sure you are not taxed on the money you put in by mistake.

[KREC]

What happens if the cost basis on prior returns was not adding in the previous years cost basis? An 8606 was filed for each year that a nondeductible traditional IRA contribution was made but line 2 under Part I of the 8606 each year says zero so the total showing up in line 3 is not reflecting prior years non deductible cost basis.  

[MarilynG1]

If your Form 8606 shows an incorrect basis on Line 14 from the prior year, you can file a 1040X with a corrected Form 8606.

Create a Form 1040X with no changes, however, indicate that you are amending in order to file a corrected Form 8606.  

Here's more detailed info on Filing a Corrected Form 8606.

@KREC