topic help with line 8 of form 8606 (recharacterization and backdoor involved) in Retirement tax questions

help with line 8 of form 8606 (recharacterization and backdoor involved)

chris1kg — Sun, 06 Dec 2020 05:04:38 GMT

Background:

1. in 2020 Sep I moved 6k (from checking account) to Roth IRA

2. when later I realized I wasn't eligible to contribute anything, there was already about 1500 income

3. I contacted fidelity, they did a recharacterization on the entire 6k contribution, and distributed overall 7500 into my newly opened traditional IRA account

4. Immediately after, they helped backdoor convert all that 7500 into my roth ira

Question:

On line 8 of the form 8606, what is the net amount converted ? I'm almost sure it is 7500, but would like confirmation or correction from experts here.

Btw, I understand on line 1 of 8606, the amount I enter should be 6k.

Thanks so much in advance.

Re: help with line 8 of form 8606 (recharacterization and backdoor involved)

macuser_22 — Sun, 06 Dec 2020 23:02:35 GMT

Are you manually filing a 8606 and a tax return? If you are using TurboTax then when you enter your1099-R the interview will ask about the basis in the IRA and the 8606 will be automatic.

If doing manually then you are correct, line 8 should be the amount actually converted which will be the 1099-R box 1 amount. (Don't forget to enter the total value of ALL Traditional, SEP and SIMPLE IRA accounts that existed on the last day of the year of the distribution on line 6 or the 8606.)

Re: help with line 8 of form 8606 (recharacterization and backdoor involved)

chris1kg — Sun, 06 Dec 2020 19:28:00 GMT

Thanks macuser_22, I'm using turbotax but I prefer understanding exactly what's going on by myself (by also doing it manually).😄

Since in my case the new traditional IRA was created just for the purpose of doing the backdoor ROTH and recharacterization, I think the traditional IRA basis in line 2 is zero, right?

Thanks again.

Re: help with line 8 of form 8606 (recharacterization and backdoor involved)

macuser_22 — Sun, 06 Dec 2020 19:51:03 GMT

Line 2 is any carry forward basis from prior years which comes form line 14 on the last filed 8606.

Note: that if you had a contribution and a distribution in the same year then TurboTax does not use the 8606 lines 6-15, it will use the "Taxable IRA Distribution Worksheet" from IRS Pub 590B Worksheet 1-1 as indicated by an * (asterisk) next to line 15 on the 8606. Using that worksheet can be a tax advantage.

https://www.irs.gov/publications/p590b#en_US_2019_publink1000230851

Re: help with line 8 of form 8606 (recharacterization and backdoor involved)

dmertz — Sun, 06 Dec 2020 22:58:37 GMT

In the first reply, macuser_22 meant to say line 8, not line 7. Line 7 is for IRA distributions that are not converted to Roth, but keep in mind macuser_22's second reply that indicates that there is a good chance that TurboTax will use the worksheet to do the calculation rather than lines 6 through 12 of Form 8606.

Re: help with line 8 of form 8606 (recharacterization and backdoor involved)

macuser_22 — Sun, 06 Dec 2020 23:03:26 GMT

Line 8 - that was a typo I did not catch - corrected.

Re: help with line 8 of form 8606 (recharacterization and backdoor involved)

chris1kg — Mon, 07 Dec 2020 21:45:01 GMT

Thanks to both of you macuser_22 and dmertz!

Still on line 2, this is my very first time doing 8606 (i.e., no previous year 8608 line 14 to carry over from), so definitely line 2 would be zero right? 🤔

Re: help with line 8 of form 8606 (recharacterization and backdoor involved)

macuser_22 — Mon, 07 Dec 2020 21:59:31 GMT

Correct, if you have no prior non-deductible basis - line 2 should be zero.