How to fill up form 8606 with two IRA accounts?

[Novahut]

How are the numbers entered into the 8606 form? Particularly, line 2, which is the "total basis in traditional IRAs."

-There is an IRA with $1700 in it. These funds were rolled over from a 401k in prior years and the money is pre-tax.

-Another IRA account was opened in Nov. 23 and funded with $500 post-tax money. If February '24 another $2000 post-tax was deposited to this account (total $2500 for 2023). 

1) For line 1 on the form, "Enter your nondeductible contributions for 2023", should it be $2500?

2) What goes on line 2 "your total basis in traditional IRAs."? Should it be the $1700 or zero?

From the IRS instructions "Instructions for Form 8606", it says about line 2, "You may need to enter an amount that is more than -0-"... "You rolled over any nontaxable portion of your qualified retirement plan to a traditional, traditional SEP, or traditional SIMPLE IRA that wasn’t previously reported on Form 8606, line 2. Include the nontaxable portion on line 2.

The $1700 was rolled over many years ago from a pre-tax 401k. 

Thank you! 

[fanfare]

Line 2 is not your total basis in IRAs

It is your prior years basis.

Typically, this is from Line 14 of the previous Form 8606.

It sounds like you are missing some Forms 8606 for earlier years.

@Novahut 

[DanaB27]

I'm assuming you are working on your 2023 return.

1. Yes, if you made nondeductible contributions of $2,500 then line 1 of Form 8606 will be $2,500. 

2. No, pre-tax funds would not be included on line 2. You only include nontaxable (after-tax) rollovers from a qualified retirement plan on line 2. 

@Novahut 

[Novahut]

Thank you both for replying! 

@fanfare , there was no previous 8606 forms because there was no prior non-deductible contributions. 

@DanaB27 , yes this is for 2023. Just to confirm: when you say " ... include nontaxable (after-tax) rollovers ... ", the $1700 falls in this category right? It never was taxed (it was pre-tax 401k contribution that was rolled over to an IRA). 

A follow up question is then, where does this $1700 play a role in the pro-rata rule? There was a conversion of the $2,500 to a Roth IRA in 2024. 

Thanks again!

[fanfare]

"where does this $1700 play a role in the pro-rata rule? "

the only way $1,700 can play a role is on some Form 8606.

[DanaB27]

You stated that the $1,700 were pre-tax, therefore the $1,700 do not fall under the  "... include nontaxable (after-tax) rollovers ... " category. You do not add the $1,700 to line 2 of Form 8606. The $1,700 will be taxable when you take them out of the traditional IRA. 

Since you have pre-tax and after-tax funds mixed in the IRA the pro-rata rule applies. TurboTax will ask for your value of all your traditional, SEP, and SIMPLE IRAs on December 31, 2023 (click continue after you enter all Form 1099-R). And then TurboTax uses this and the other information from Form 8606 to calculate the nontaxable part of the conversion on line 13 according to the pro-rata rule.

@Novahut 

[Novahut]

Thank you very much @DanaB27! 

Okay, and when TurboTax asks for "all IRA" accounts, that value would be the "$1700" only (or whatever that value was on Dec 31).  The non-deductible contributions are not included in that answer, right? 

[DanaB27]

The value on December 31, 2023, please check your statement. Yes, it would include the non-deductible $500 if they were still in the account on December 31, 2023.