What amount do I report as basis for my Roth IRA recharacterized last year from a simple IRA on form 8606 this year when reporting my 2018 contribution?

[thomasjeff5]

Since I converted my one and only simple IRA to a Roth and the entire sum was subject to taxes, am I assuming correctly that sum is my initial basis for my Roth this year when reporting my 2018 Roth contribution on form 8606?

[Hal_Al]

Yes and No.
Your Roth IRA consist of three parts, contributions, conversions (not called recharacterizations) and earnings (interest, dividends and capital gains).
Although your basis consists of both contributions and conversions. They are treated differently for the "ordering rules" for withdrawals..
Reference: <a rel="nofollow" target="_blank" href="https://www.investopedia.com/retirement/tax-treatment-roth-ira-distributions/">https://www.investope...>

[dmertz]

Conversions as recharacterizations are two different things.  If you did a recharacterization of a traditional IRA contribution to be a Roth IRA contribution instead, the addition to your basis in Roth IRA contributions would be the amount of your contribution, the amount originally contributed as a traditional IRA contribution.

However, it sounds like you did a Roth conversion, not a recharacterization.  The Roth conversion would result in basis in Roth conversions, not basis in Roth IRA contributions.

It's also not clear what a Roth IRA contribution for 2018 has to do with any of this.  Form 8606 is not used to report Roth IRA contributions other than Roth conversions.

[thomasjeff5]

Thank you for your response to my question. I think I simply need to ask if my annual non-deductable Roth contribution needs to be reported anywhere on any form. From various resources I was lead to believe it needed to be reported on form 8606. And that lead to the problem of how to determine my "total basis in trad IRAs"  from line 2 on 8606. A second question I also now have is: I had the understanding that 20 years ago after converting my trad IRA to a Roth IRA, non of my Roth funds would ever be taxable. Is this correct or no. Thanks

[dmertz]

You are required to track Roth IRA contribution basis yourself (perhaps with the help of TurboTax).  Roth IRA contributions themselves are not reported on Form 8606.  Roth IRA contribution basis is only entered on Form 8606 when you make a regular nonqualified distribution from a Roth IRA, used to determine how much of the distribution is nontaxable.

Five years after the beginning of the year in which you did the Roth IRA conversion the amount that you converted became equivalent to Roth contribution basis, an amount that can be distributed tax free at any time.  Since it's been well over 5 years from the date you first made a contribution to a Roth IRA, any distribution made from your Roth IRA after you reach age 59½, become disabled or die will be a qualified distribution, entirely tax free.  Prior to that, only your basis in regular Roth IRA contributions, your basis in Roth conversions more than 5-years old and any basis from nontaxable Roth conversions (subject to Roth IRA distribution ordering rules) can be distributed tax and penalty free.

[thomasjeff5]

Thank you for taking your time to clear up this erroneous information for me. I was preparing myself to file eight years of 8606 forms and didn't know where to start. Thinking about it though makes me wonder how the IRS does account for Roth IRAs if non of the deposits are reported by either the individual or the investment company. Is there some part of this I am missing?

[dmertz]

Roth contributions and Roth conversions are reported to both you and the IRS on Forms 5498 prepared by the Roth IRA custodian.  If the IRS is so inclined, the IRS could construct your Roth IRA basis history from these and from Forms 1099-R reporting distributions from your Roth IRAs to determine if any reporting you might make on Form 8606 regarding the taxability of a nonqualified Roth IRA distribution is accurate.  Still, it's your responsibility to track your Roth IRA basis so that you can accurately prepare Part III of Form 8606 if it's ever needed.

[surgerygalore · Accepted solution]

hello

to answer your question, first analyze your ONLY traditional IRA.

The basis of that account is typically the contributions you made.  Those contributions may be before tax or after tax dollars.

When you transfer funds from a traditional IRA to a Roth IRA, you may therefore be transferring before tax or after tax dollars.  Plus the return on your capital when it was in teh trad IRA, let's call it for simplicity interest

So, once in the Roth IRA, 

the tradtional IRA contributions that were made with after tax dollars will not be taxed at distribution (provided certain rules are met)

the traditional IRA contributions that were made with before tax dollars, if any, will be taxed when distributed from a Roth IRA

The interest amount transferred from a trad IRA will always be taxed when distributed from a Roth IRA

In the tax jargon, typically basis are contributions to an IRA with after tax dollars.  so fro your transfer, the basis of your Roth IRA as it pertains to teh transfer is the amount of after tax dollars taht you transferred from the traditional IRA

hop this helps

good luck