Form 8606 - traditional IRA basis less than taxable conversion amount

[morniing]

In 2021, I converted $20k from traditional IRA to Roth IRA.   The $20k consisted of (1) $12k after-tax (nondeductible) contributions made in 2021-2, with $6k earmarked for 2021 and the remaining $6k earmarked for 2020, and (2) $80k pre-tax contributions made in multiple prior years.  The market value of my traditional IRA at end of 2021 was $206k.   Of the $20k conversion, the nontaxable portion was $1k , calculated as 12k/(20k+206k).  This left $19k to be taxable.  I'm fine with all these numbers. 

However, my Form 8606 line 14 indicates that my "total basis in traditional IRAs for 2021 and earlier years" to be only $11k.   This apparently was calculated from $12k-$1k and left out the $80k prior year deductible contributions (which I paid taxes on during the Roth conversion).   I find it hard to reconcile the fact that I was taxed on $19k, but my basis was only $11k.    What am I missing and how do I correct it?  Thanks.

[fanfare]

that's how it works.

your amount not taxable is prorated out of basis.

then that reduces your prior years basis on line 14.

"what am i missing"

you are just unhappy to be taxed.

@morniing 

[fanfare]

the Backdoor Roth trick is just not available if you start with a large amount, such as 200K, in your traditional IRA.

You must start with ZERO.

@morniing 

[morniing]

Thanks for your reply.  To be clear, I think it's fair for me to be taxed at conversion.  However, if my traditional IRA basis doesn't increase by the amount I get taxed, won't I be taxed the second time on the same money(the $80k) when I take a distribution from my traditional IRA?  It's not fair to be taxed on the same money twice.

@fanfan 

[fanfare]

The money (80k) you took a deduction on already is not part of basis.

How old are you?

I wish I had all my retirement money in a Roth IRA rather than a Traditional IRA.

If I were you I would convert as much as possible as soon as possible.

Most retirement savers resist this idea.

[morniing]

@fanfare 

I deducted the $80k when I contributed the money to my traditional IRA in the past.  However, I was taxed on it when I converted the amount to Roth.  Is there a reason why they cannot be part of my basis after it's been taxed?     

I'm not young, just am late to discover the backdoor Roth.

[fanfare]

As I said above, the Backdoor Roth is not available to you.

As I said above, The money (80k) you took a deduction on already is not part of basis, and never will be.

The 19K in your Roth,  and its associated growth, will never be taxed.

The idea is to make your Roth grow so you can retire without working. 

@morniing 

[morniing]

Repeating things does not convince. 

Can someone else please share some sensible opinions?

[fanfare]

print a copy of your tax return for your records, if you haven't already.

Peel out the Form 8606, settle down in your reading chair and take a good look at it.

Then you will see what is happening.

Admittedly, Form 8606 can be dense, but the principle is simple once you understand it.

@morniing 

[morniing]

After more digging on the Internet, I found out what I was missing:

Basis refers to the after-tax money in the REMAINING traditional IRA account.  

The $80k went to Roth, i.e. no longer in the traditional IRA account.

Of the $12k after-tax money I contributed, $11k after-tax money was "left" in the traditional IRA account.  Only $1k after-tax money, along with $11k plus $80k, both pre-tax, from the traditional IRA account, was converted to Roth.  $19k of the $20k was taxed for the first time during conversion and will not be taxed again when distributed from Roth in the future.

You can convert funds from traditional IRA to Roth while observing the pro rata rule.  The backdoor Roth conversion works even if you don't have from zero traditional IRA.

[dmertz]

The $19k on which you were taxed became basis in Roth conversions taxable at conversion, not basis in traditional IRA contributions.  2021 TurboTax properly shows your $12k of basis in nondeductible traditional IRA contributions being reduced by the $1k of such basis that was applied to the conversion, leaving you with $11k of basis in nondeductible traditional IRA contributions to carry forward from 2021.