When to report IRA basis?

[user17609814231]

     I'm turning 73 this year (2025) and took my first RMD early in the year. This year, after taking the total RMD, I also did a partial Roth conversion, as I have for six of the past seven years.

     After many years of having a CPA do our taxes, because our CPA was retiring, this year I filed our 2024 return myself using TurboTax.

     Our 2023 tax return (done by the CPA) reports $12,485 basis in my Roth contributions as of 12/31/2022. Filing via TurboTax for 2024, it was very unclear whether I should or should not report this basis, so I did not.

     My question: Am I eligible to report the basis on our 2025 return? Also, do you have any caveats or heads-up advice about how  to handle basis?

[K M W]

Current tax rules are clear that you cannot convert the Required Minimum Distributions (RMD) from an IRA into a Roth IRA; however, with that being said, you can convert any remaining funds in your traditional IRA to a Roth IRA after you have taken the RMD amount for the year.  As an example, if your RMD for 2025 is $5,000, then you must take a distribution of at least $5,000, and you cannot convert any portion of that $5,000 to a Roth IRA.  But, you can choose to take a distribution of more than $5,000, and the amount that exceeds $5,000 can be converted to a Roth IRA.

Based on your age and the fact that you have had a Roth IRA for over 5 years, there is no need to keep track of your basis in the Roth IRA, as any distributions from your Roth IRA will be tax free to you - both return of contributions as well as all the earnings. If you were taking Roth distributions before age 59 1/2, OR if you were taking Roth distributions and you did not have a Roth account for at least 5 years, then your basis in the Roth would be important, as any portion of a distribution that represented earnings would be considered taxable to you under either of those 2 situations.  As such, the short answer for your situation is that you do not need to report your Roth basis in TurboTax for 2025.

I do want you to double check the 2023 return and make sure the basis number reported on it was the basis in your Roth IRA, and NOT the basis in your Traditional IRA. If this $12,485 represents your basis in your Traditional IRA, that number represents your after-tax contributions to your Traditional IRA, and yes, you would want to make sure you report that on your tax returns (I would recommend you amend your 2024 return if this is the situation). When you have after-tax contributions in your Traditional IRA ("basis"), then that means every time you take a distribution from the Traditional IRA, a part of the distribution is a return of your basis and would be tax free.  In my example above, if you had basis in the Traditional IRA, then when you took the $5,000 RMD distribution, an amount less than $5,000 would be the taxable portion of that distribution, instead of the entire amount.  The calculation of the taxable portion of Traditional IRA distributions when you have basis in the account is calcuated on IRS Form 8606, and is determined by the amount of your basis remaining in the account, and the value of all your Traditional IRA accounts as of the last day of the year.

I hope the above answers all your questions - have a great rest of your day!

[Opus 17]

Once you hit age 59-1/2 (and your Roth IRA is more than 5 yers old), there is no need to track the source of your Roth IRA funds as coming from contributions, conversions or earnings.  All withdrawals from a Roth IRA are tax-free regardless of the source of the money.

(If you do want to keep track, you do that yourself, it is not part of any tax form and does not get reported to the IRS.  For someone under age 59-1/2, if they claim a withdrawal is tax-free because it is contributions, it is up to the taxpayer to prove it from their records if audited.)

[user17609814231]

Thank you! I will closely check older returns to see if the basis was from my traditional or Roth IRA. I think it is possible that it was from my traditional.

[Opus 17]

---

@user17609814231 wrote:

Thank you! I will closely check older returns to see if the basis was from my traditional or Roth IRA. I think it is possible that it was from my traditional.

---

It doesn't matter to a Roth where the money comes from.  Since it is all taxed when deposited (either as a contribution or conversion), and withdrawals are tax-free, the concept of basis is irrelevant to a Roth.

If you have a traditional IRA that has an after-tax basis, that is tracked on form 8606, and if you want to withdraw part of the the traditional IRA tax-free (because you already paid tax on part of the contribution) you need the most recent form 8606.  A new one is generated with every tax return that either makes a non-deductible contribution, or withdraws from, or converts from, a traditional IRA.