Tracking Non deductible IRA basis

[jeff B1]

Turbo Tax had been tracking my IRA basis of $5,200 from the 1990s through 2009. In 2010, I converted $15K to a Roth IRA. My basis of $5,200 was subtracted from the $15,000, giving me a taxable amount for the conversion of $9,800. That basis of $5,200 no longer shows up as of 2015. I'm trying to figure out my basis again and not sure whether I "used" it when it was subtracted from the conversion in 2010, or if it was just lost in Turbo Tax due to a number of changes since then - i.e. a divorce and new marriage, switching from desktop software to TT online, or something else.

[dmertz]

When you converted your entire balance in traditional IRAs to Roth leaving nothing in your traditional IRAs at the end of 2010, your entire basis in nondeductible traditional IRAs was distributed from your traditional IRAs.  Unless you subsequently new nondeductible traditional IRA contributions or rolled over to a traditional IRA after-tax money from a qualified retirement plan like a 401(k), you no longer have any basis in nondeductible traditional IRA contributions.

[jeff B1]

Thanks for the quick reply. That makes total sense and I figured that was probably the case. I just wanted to confirm because of the other possibilities. Also, I didn't convert the entire balance of my traditional IRAs, but it was more than my basis up to that point. It doesn't sound like the entire balance is the important part, though, correct? Just that it was more than the basis? And correct, I haven't made any such contributions but plan to soon, which is why I was trying to look this up.

[dmertz · Accepted solution]

If in 2010 your basis was $5,200, you made a $15,000 Roth conversion, you had a nonzero traditional IRA balance at the end of 2010 and your tax return reported a taxable amount of only $9,800, you filed in incorrect tax return for 2010.  Because you had a nonzero balance in traditional IRAs at the end of 2010, only a portion of your basis should have been applied to reduce the taxable amount of the conversion.  Examine your 2010 Form 8606 to see where the error was made, perhaps by not correctly reporting on line 6 your year-end balance in traditional IRAs.

It's too late for the IRS to challenge your 2010 tax return, so there should be no concern about the IRS in the future assessing the tax that should have been paid in 2010.

Because your 2010 tax return treated your Roth conversion as including all $5,200 of your basis even though it was erroneous, because that was never corrected and cannot be corrected, you are not now permitted to take an inconsistent position that less than $5,200 of your basis was applied to the 2010 Roth conversion.  Ultimately the result is the same as if you had no year-end balance in traditional IRAs at the end of 2010, you no longer have any basis.

[jeff B1]

Yes, I see what happened there and I see that there was no total balance entered on line 6. It's too far back to remember why that happened. I remember doing this conversion and that there was an option to split those taxable amounts between the 2011 and 2012 returns, but as far as the basis I don't even remember that being subtracted out. And I don't remember intentionally not entering my total balance. I know that my basis had been tracked in Turbo Tax so presumably Turbo Tax entered that automatically.

Bottom line, the $5,200 was applied so I won't include that going forward. Thanks again!

[dmertz]

For the purpose of preparing Form 8606, TurboTax knows nothing about your year-end balance in traditional IRAs unless you enter the value.  It's common for users to inadvertently miss entering the year-end balance when they've made a distribution from a traditional IRA and they have basis in nondeductible contributions, resulting in an incorrect Form 8606.  I first suggested to TurboTax Product Quality somewhere around 2014 that when Part I of Form 8606 shows a distribution that TurboTax require a non-blank line 6, even if the correct value is zero.   Nothing has been done to implement this error-check in TurboTax, so the problem persists.

[jeff B1]

Right, that all makes sense. I've been using TurboTax since the 1990s so I would have been pretty familiar with it by 2010. I think it would have to have been something really easy to miss, although clearly I didn't enter anything. I do remember doing this conversion and specifically choosing to split the tax liability over the next two years, so I'm sure I would have remembered doing anything consciously as far as entering the balance or not.