dmertz
Level 15

Retirement tax questions

Your 2025 Form 8606 used to calculate the taxable amounts of distributions and Roth conversion performed in 2025 is required to used your 12/31/2025 balances of your traditional IRAs.  Your 12/31/2024 balance is used nowhere in this calculation.

 

You might take into account your 2024 year-end balance when making a guess at what your 2025 year-end balance will be so that you can estimate the nontaxable and taxable amounts of traditional IRA distributions and conversions made in 2025, but it will be your actual 2025 year-end balance that is used in the calculation on your 2025 Form 8606.  The nontaxable and taxable amounts will be determined as if the transactions all occurred on 12/31/2025.

 

Regarding your example, if you have $60,000 in nondeductible traditional IRA contributions, you convert $100,000 of a $200,000 traditional IRA balance on March 31, 2025, and then the investments in your traditional IRAs increase in value by $50,000 by, say, by rolling $50,000 over to your traditional IRAs from a 401(k) such that the balance in your traditional IRAs on December 31, 2025 is $150,000, the nontaxable amount of your $100,000 Roth conversion will be calculated as:

 

$100,000 * $60,000 / ($100,000 + $150,000) = $24,000

 

Notice that your 2024 year-end balance of $20,000 is used nowhere in the calculation.  Your 2025 year-end balance of $150,000 is used.