OK, I understand. You are in stable situation, and you have until December 31, 2024 to decide your next step.
The only thing you report on your 2023 tax return is that you made a non-deductible IRA contribution. You don't need to report the conversion or the recharacterization. Your form 8606 shows that you have already done this.
Going forward, the most important thing to learn is that, for tax purposes, all your traditional IRA accounts are grouped together and considered one single Individual Retirement Arrangement by the IRS. While it may be convenient to have the non-deductible contributions in a different account, it does not change the tax position in any way.
From your figures, you have about $39,000 in all your trad IRAs (remember they are grouped together for taxes). If you converted the entire balance to a Roth IRA in 2024, $6500 of the conversion is non-taxable, and $32,845 will be taxable. If you only convert a partial amount, it will be partly taxable, because the conversion is pro-rated, you are not allowed to only convert the non-deductible amount (because all accounts are grouped together for taxes). Because 16.6% of your total IRA balance is non-deductible, 16.6% of any conversion amount will be non-taxable, but the other 83.3% will be taxable. Your remaining balance in the trad IRAs will include a reduced amount of non-deductible contributions, and this is all tracked on form 8606.
If you want to be set up to do a true "backdoor Roth" in the future, you have to get your trad IRA balances to zero. Here's one way to do that.
1. For 2024, you can make another non-deductible contribution of $6500. That will bring your total balance to about $45,000, with $13,000 being non-deductible contributions.
2. Convert all your trad IRAs to one or more Roth IRAs. $32,845 will be taxable. You will need to find that tax money someplace else.
3. Then you will start 2025 with a zero balance in trad IRAs. In 2025, you can make a non-deductible IRA contribution, and immediately convert it to the Roth, and no tax will be owed. You can do the same thing every year going into the future, as long as you don't make deductible IRA contributions.
If you can't come up with $10,000 in extra income tax for 2024, here is another way to eventually get to that zero trad IRA balance.
1. For 2024, you can make another non-deductible contribution of $7000. That will bring your total balance to about $46,000, with $13,500 being non-deductible contributions (28%).
2. Do a partial conversion, let's say $10,000. 29% is non-taxable and 71% is taxable. The tax on $7100 would be about $2000 depending on your state, which might be more affordable. You still have $9585 of non-deductible funds in your traditional IRAs.
3. Then in 2025, make another $7000 non-deductible contribution. Your total non-deductible contributions are $16,585 and your total balance (with investment gains) is probably $46,000. Convert $10,000. This time, 36% is non-taxable and 64% is taxable.
4. Keep doing this year over year until you get to the point where the traditional IRA is mostly composed of non-deductible funds and you can afford to convert the entire remaining balance and pay the tax on the remaining deductible portion.
5. Then you can go forward with the normal "backdoor Roth" in future years.
