Are after tax contributions to an employer retirement plan that were rolled over to a Roth IRA added to the IRA basis?

[Yakman]

I have two questions on Form 8606 and the cumulative IRA basis.

1)  I forgot to file a Form 8606 Non-Deductible IRAs for 2022 and reviewed my prior year Forms 8606 and 5498 through 12/31/2022.  It looks like I'm missing a couple of Forms 8606 and 5498  (and the 8606 cumulative amounts were incorrect), but I have statements and tax returns to show the IRA contributions were made after-tax.  Is it a problem that I have a couple of missing and incorrect Forms 8606 and mislaid Form 5498 from prior years?  

2)  In 2020, I closed an account with my employer 403(b) and made a rollover of the funds to another brokerage firm.  The 1099-R shows:

Box 1 Gross Distribution    $10,000

Box 5 Employee Contributions/Designated Roth Contribution or Insurance Premiums  $2,000

Box 7 Distribution Code G (Direct rollover of a distribution to... an IRA)

The $2,000 represents after-tax contributions to my 403(b) plan.  Thus, of the $10,000 Gross Distribution, $8,000 was a rollover to a Traditional IRA and $2,000 was a rollover to a ROTH IRA. 

In the Turbo Tax guide, it asks if I had any 'rollover basis from employer retirement plans', and the answer is 'Yes'.  But Turbo Tax then adds this amount to my Non-Deductible basis, is this correct, even though I rolled the $2,000 over to a Roth IRA? 

What is the correct treatment?  Are after tax contributions to an employer retirement plan that were rolled over to a Roth IRA added to the IRA basis?

Thank you

[dmertz · Accepted solution]

1) You need to file the missing Forms 8606 and file amendments to any incorrectly filed Forms 8606.

2) For the split rollover that you described, the single code-G Form 1099-R must be entered into TurboTax as two code-G Forms 1099-R, one with $8,000 in box 1, $0 in box 2a and $0 in box 5 for the portion rolled over to the traditional IRA and another with $2,000 in box 1, $0 in box 2a and $2,000 in box 5 for the portion rolled over to the Roth IRA.

[Opus 17]

1. Yes, it's a problem.  Whenever you want to withdraw money from the traditional pre-tax IRA, the default position of the IRS is to tax it all.  Your only claim to having a non-taxable basis is your accurate and timely filed form 8606 (or 8606's).  There is also a $50 penalty for every form 8606 not filed.  Technically, you only need the most recent 8606 when you file a tax return, and that creates a new 8606 that you use the next year.  But you should keep them all, so you can prove the history of your taxable basis if audited.  You should file amended tax returns to update, correct, or add missing form 8606s.  Because each form flows from the previous, you will have to go back to the last fully correct 8606 and work your way forward one year at a time.

2. Your rollover IRA does not contain any after-tax basis from your work plan because the after-tax basis was rolled over to a Roth IRA.  They are different and separate.