Should I use all of my IRA basis this year? I converted money from a traditional ira to a roth ira. I may or may not convert more in the future.

[mcwarfield05]

The Roth conversion has a 1099R and I paid the expected tax last year when I converted to roth from traditional. I have a pretty good IRA basis and want to use it all this year to help with taxes. However Turbo tax asks me for the value of my Traditional, SEP, and Simple IRA's on Dec 31,2024 at the end of the income section after showing my IRA basis? I still have money in a few IRA's that may or may not be converted to Roth, when I enter that number my refund drops by several thousand dollars, can I just leave that $0 to use all my basis this year?

[AnnetteB6]

No, you cannot decide to use all the basis of your Traditional IRAs in a single year.  

If a distribution is made from a Traditional IRA and you have a basis in any of your Traditional IRA accounts, the distribution is always considered to be a mixture of pre-tax and after-tax funds over all of your Traditional IRAs.  It does not matter whether you are converting the distribution to a Roth IRA or if you are doing something else with it.  You need to enter the total value  of all of your Traditional IRA accounts for the calculation to be accurate.

You may also hear this situation referred to as the 'pro-rata rule'.

[mcwarfield05]

So does TurboTax then recalculate my IRA basis total after I enter the value of my Traditional IRAs? It looks like once I said the basis they calculated over the years was correct. The refund climbed up but once I entered my Traditional IRA value it dropped again but only a portion I did get some tax relief from it.

[MarilynG1]

Any money you contribute to a traditional IRA that you do not deduct on your tax return is a “nondeductible contribution.” You still must report these contributions on your return, and TurboTax uses Form 8606 to do so.

You enter your 12/31/2023 basis and any non-deductible contributions for 2024, and this is reported on Form 8606.  It is still your responsibility to track your basis contributions; TurboTax just adds what you reported as your 2024 beginning basis to any transactions reported for 2024.  

If you didn't have any non-deductible contributions for 2024, keep your last Form 8606 so you'll have those amounts for the next time you do so.

Here's more detailed info on Form 8606.

@mcwarfield05 

[dmertz · Accepted solution]

Because of the pro rata calculation on Form 8606, your traditional IRA distributions will consume only part of your basis each time until you distribution leave you with nothing in traditional IRAs at year-end, at which time you will have applied all of your basis.

[mcwarfield05]

Thanks.  One last question that came from the answers.  I only include Traditional IRA, Traditional Simple IRA, and Traditional SEP. I don't include any Roth IRA or 401K money here?

[dmertz · Accepted solution]

Correct.