dmertz
Level 15

Retirement tax questions

I am unable to follow the bits and pieces of the transaction history.  I would need to see a complete timeline of all of the transactions beginning with 2020 (along with any traditional IRA balance at the beginning of 2020) to be able to say what your Forms 8606 should have looked like.  Note that TurboTax does special calculations when you make nondeductible traditional IRA contributions and distributions/conversions in the same year which can add to the confusion.  Also, any recharacterizations done the in the year following the year in which the Roth IRA contribution was done are considered to be outstanding recharacterizations which must be included in the year-end balance on Form 8606 line 6 (or the equivalent line on Worksheet 1-1 from IRS Pub 590-B that TurboTax uses for the special calculation), which TurboTax normally does by asking about any outstanding recharacterizations.

 

What confuses people is trying to think of the traditional IRA contribution as being somehow intimately tied to the Roth conversion.  These are two essentially independent transactions other than the fact that the traditional IRA contribution creates basis which the Roth conversion consumes in some way.  The creation of the basis and the consumption of the basis is all handled automatically on Form 8606 (or Worksheet 1-1), so they should require no real thought.  Enter traditional IRA contributions for the year (or the Roth contributions with recharacterization) without any thought about any Roth conversions and separately enter any Roth conversions done in the year without any thought about traditional IRA contributions.