Hello,
Hope all is well and thanks in advance for your assistance.
I need help understanding IRA Basis tracking and how it affects my federal tax return and future Roth IRA withdrawals. I’ve always understood that IRA Basis is the funds in an IRA that have already been taxed, be they non-deductible Traditional IRA contributions or Roth contributions.
Background: I’ve been contributing to a Roth IRA since 1998. However, beginning in 2016 my AGI exceeded the limit to contribute to a Roth IRA, so I’ve been using the “Back Door Roth IRA” strategy to convert non-deductible Traditional IRA contributions to my Roth IRA. (Basically, I lump sum money into a Traditional IRA and a few days later (about a week) convert 100% of the Traditional IRA to a Roth. There are no earnings on the Traditional IRA contribution, and I do not receive a tax deduction on the money put into the Traditional IRA.) I’ve also been tracking my Basis in an Excel spreadsheet to help complete my tax return.
I understand Form 8606 is used to keep a historical (cumulative) record of IRA total basis but that does not seem to be the case in my situation. I’ve used Turbo Tax since 2008 and for at least the past three year’s tax returns, Form 8606 has only shown the previous year’s Tax return basis (approx. $7,000 per year (I’m over 50 yrs old)).
Shouldn’t Form 8606 show all non-deductible contributions (i.e. total basis) going back to 1998 since I’ve already paid taxes on all non-deductible Traditional IRA and Roth IRA contributions? If so should I adjust my Basis manually in Turbo Tax to get back on track and report true Basis?
Last, in 2014 the manager of my Roth IRA told me that Basis only comes into play should I withdrawal from my Roth prior to age 59 ½. After age 59 ½, Roth IRA withdrawals are tax free. Is this still true or has the rule changed?
I welcome your advice and assistance on how to correct this in Turbo Tax for 2021 tax year and future tax returns going forward.
Other Notes:
I only have one Roth IRA account.
I do not have a Tradition IRA except for the purpose of the back door conversion so there are no non-deductible dollars in the Tradition IRA I any given year.
Thanks for your help and have a great day!
Best Regards,
Allen S.
