Basis after Backdoor Roth conversions

Forum|Forum|7 years ago
April 13, 2019
1 reply
13 views

last year (and several years prior to that) i both contributed the max to a TIRA and then backdoor Roth'ed it - all during Jan 1 - April 15 for the previous tax year. On my 8606 from last year it shows basis of 5500. my overarching goal is to not have ANY nondeductible monies in my accounts, so that its pure roth/after tax dollars only. but my 8606 basis is 5500 on line 14. Does this mean my strategy is off if I have a basis every year?

macuser_22

Alumni - Champ

As long as any Traditional IRA, SEP IRA or SIMPLE IRA account exists anywhere, there will always be some basis. Only if all such accounts are closed will the basis all be applied.

You can NEVER withdraw ONLY the nondeductible part - it must be prorated over the entire value of ALL Traditional IRA accounts which include SEP and SIMPLE IRA's. (For tax purposes you only have ONE Traditional IRA which can be split between as many different accounts as you want, but for tax purposes they are all added together).

For example using rough figures: if you had $60K of nondeductible contributions in an IRA with a total value of $600K (10:1 ratio), then when you take a $60K distribution from any IRA account $6,000 would be nontaxable and $54,000 would be taxable (same 10:1 ratio) , with the remaining $54K of basis staying in the IRA for future distributions. As long as there is any money in the IRA, there will be some basis.

TurboTax will ask for your non-deductible "basis" and then the *Total Value* of *all* Traditional IRA, SEP and SIMPLE accounts as of Dec 31, of the tax year. That is so the prorating of the basis can be properly proportioned between the current years distribution and the remaining IRA value. That is done on the 8606 form.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

glovskysAuthor

Level 2

If I contribute $5500 to a nondeductible ira account that has zero dollars in it in April 2019 for tax year 2018, then quickly convert the entire balance to a Roth a few days later, rendering the nondeductible ira account balance zero again...and I have no other nondeductible money in any ira account, is that 5500 my “basis” when I file despite fact I zeroed out the non deductible amount right away?

macuser_22

Alumni - Champ

You are asking about the past - what you did last year in 2019?

If that is the ONLY Traditional IRA account then yes.

Be sure that you filed a 2018 8606 form reporting it as a 2018 nondeductible contribution to be able to do that.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**