TurboTax incorrectly transferring backdoor Roth IRA basis? (Form 8606)

[smallsheep]

I am married filing jointly and have a question about whether TurboTax is correctly transferring the basis for Form 8606. The details of my situation are below.

2022

In January 2022, both me and my spouse made a non-deductible $6,000 contribution each to our respective traditional IRA accounts. We decided later in November 2022 to begin doing backdoor Roth contributions and to "clear" our traditional IRA balances for subsequent years.

• Me: I had the ability to roll over my balance to my employer's 401k plan to bring my traditional IRA balance to 0 by December 31, 2022.
• Spouse: Did not have this option and performed a Roth conversion paying taxes on it. At the time of conversion, the value of the account was 4,875.87. Following the conversion, on December 31, 2022, the balance in his traditional IRA account was also 0.

On our 2022 tax return Form 8606, we have the following amounts:

Me

• Line 1: 6,000
• Line 2: 0
• Line 3: 6,000
• Line 14 ("This is your total basis in traditional IRAs for 2022 and earlier years"): 6,000

Spouse

• Line 1: 6,000
• Line 2: 0
• Line 3: 6,000
• Line 5: 6,000
• Line 13 ("This is the nontaxable portion of all your distributions": 4,876
• Line 14 ("This is your total basis in traditional IRAs for 2022 and earlier years"): 1,124
• Line 15c: 0
• Line 16: 4,876
• Line 17: 4,876
• Line 18: 0

Lines 13, 15c, and 18 have a * to the right of the amounts, and at the bottom of the form, there is a note explaining " * From Taxable IRA Distribution Wkst (per IRS Pub. 590-B)."

2023

In January 2023, both me and my spouse made a non-deductible $6,500 contribution each to our respective traditional IRA accounts and immediately performed Roth conversions on the entirety of the funds. On December 31, 2023, the balance in each of our traditional IRA accounts was 0.

I am currently preparing our 2023 tax filing. I followed the usual procedure outlined by TurboTax. I've also followed the steps to verify on the form preview that I'm entering the backdoor Roth for each of us correctly (as I did in 2022). 

However, when I'm going through the reporting steps, after entering the forms, when I reach the screen:

"Let's Find Your IRA Basis

We transferred the total basis in X's traditional IRAs for all years through 2022. Correct the amount below, if needed.

X's total basis as of December 31, 2022:"

• Me: TurboTax transfers $6,000 as the basis. This is indeed the amount on Line 14 ("This is your total basis in traditional IRAs for 2022 and earlier years") on my 2022 Form 8606. This appears correct. 
• Spouse: TurboTax lists the basis as 0. This is not the amount on his Line 14 on his 2022 Form 8606; as listed above, this line on the form is $1,124.

Question

I have the following questions:

1. Why is TurboTax suggesting that the basis for my spouse is 0? Reading the "Learn More" and EasyGuide ("Help me figure out my IRA basis"), I expected this to be transferred from Form 8606 line 14 (which is $1,124, not 0).
2. Is 0 indeed his basis as TurboTax suggests, or should this field show $1,124 and TurboTax is transferring this incorrectly?
3. If the latter and I need to correct the basis, when I try to correct it ("Correct the amount below, if needed."), TurboTax asks me to include an explanation for the correction. If I do have to change the amount, for the explanation, is it sufficient to state that this is the amount on my spouse's 2022 Form 8606 Line 14?

I would appreciate any insights you might be able to provide.

[dmertz]

It's all too easy to cause TurboTax to silently delete basis carried in from the previous year by inadvertently answering No when TurboTax asks if the individual made any nondeductible traditional IRA contributions for a prior year.  When you correct the amount back to the amount that was originally carried in, TurboTax inappropriately sees this as a change to the basis from the previous year.

"is it sufficient to state that this is the amount on my spouse's 2022 Form 8606 Line 14?"

Probably.

[smallsheep]

I certainly answered 'Yes' to this question -- do you mean I may have made a mistake and answered 'No' last year? Is there a way for me to check this either in TurboTax or in my last year's filing? (I've filed with TurboTax for the past 5+ years.)

[dmertz]

Basis is tracked on TurboTax's IRA Information Worksheet, so it would make sense to check that in both your 2022 and 2023 tax files.

I say it is easy to inadvertently answer No because that's the default answer TurboTax presents even of the IRA Information Worksheet says otherwise.  All one has to do is click the Continue button once before changing the answer to Yes and TurboTax deletes the information without warning.  (It makes no sense that TurboTax defaults the answer to No when the IRA Information Worksheet says otherwise.)

[smallsheep]

Thank you -- I've noticed that's the default (and perhaps not the best design choice...).

I apologize if this is a stupid question, but could you please let me know where can I find the IRA Information Worksheet? I couldn't locate anything with that title in our 2022 return .pdf (downloaded from TurboTax) or see it in the preview for this year. If you are referring to Form 8606, I've listed all the lines with values in my original post (but I suspect this is something else). 

[dmertz · Accepted solution]

The IRA Information Worksheet would only be in the pdf that includes all forms and worksheets, not the pdf that just includes the forms for filing.  If you used the online version of TurboTax, as far as I know you can select either version of the pdf for download.  If you obtain the version that includes all forms and worksheets and the IRA Information Worksheet is not present, it would seem that the information was lost before beginning your 2023 tax return.

[smallsheep]

Unfortunately I haven't been able to find any worksheets associated with my past tax returns (all with TurboTax) under documents/print center or elsewhere in the online version. I ultimately contacted support and got connected to a "tax expert" to go over basis transfer issue, but both have been unhelpful (with the tax expert sending me a first page Google link for how to report a backdoor Roth). In the absence of any support from TurboTax's side, it sounds like my best bet is to update the basis manually and add an explanation. Thank you for your help! 🙂