@DanaB27, thanks for the detailed reply. It's very helpful. I have a couple clarifying questions if that's ok.
No, you do not need to amend your 2020 tax return. It seems that your 2020 Form 8606 is correct since it shows the correct new basis (from the recharacterization), provided that your wife did not have any basis in her SIMPLE IRA (or you had a basis in any other traditional IRA, SEP, or SIMPLE IRA).
I think I'm getting tripped up over nomenclature. I had thought "basis" just means any non-zero balance. Her SIMPLE IRA has been around now for several years, so it definitely had a non-zero balance in 2020. But my intuition now is that "basis" means something specific in the IRA context to denote how much of a traditional IRA balance has been deducted vs not deducted. And since our first Roth conversion happened in 2021, and neither of us had previously made any non-deductible contributions, we did not have a "basis" in 2020...?
You stated that you recharacterized the 2021 in 2022 therefore be sure to enter the amount under "Outstanding Recharacterizations" on the "Tell Us the Value of Your Traditional IRA" screen
I'm glad you mentioned this. I had interpreted that to mean outstanding recharacterizations from Traditional/SEP/SIMPLE IRAs only.
