dmertz
Level 15

Retirement tax questions

Form 8606 was required to be included in your 2024 tax return whether or not your traditional IRA received the dividend distribution.  If the 2024 Form 8606 was not present or was incorrect, you must amend your 2024 tax return to make the correction.

 

Because you had a nonzero balance in traditional IRAs at the end of 2024, your $7,000.85 conversion was partly taxable, and resulted in a small amount of your basis in nondeductible traditional IRA contributions remaining in your traditional IRAs.

 

As an example, I'll assume that the dividend resulted in a 2024 year-end balance in your traditional IRAs of $20 and I'll use the rounding that TurboTax would use on Form 8606.  The nontaxable amount of your 2024 Roth  conversion would then be $7,001 * 7,000 / (7,001 + 20) = $6,980 and the taxable portion would then be $21.  $20 of your basis in nondeductible traditional IRA contributions would remain in your traditional IRAs, shown on Form 8606 line 14, to be applied to future distributions.  Line 14 carries forward to line 2 of the next Form 8606 that you are required to file.

 

With such a small amount in your traditional IRAs, it would make sense to simply convert your entire traditional IRA balance to Roth so that you end up with a $0 year-end balance in traditional IRAs.

View solution in original post