How to calculate IRA basis for all prior year contributions?

[VA_Is_ForLovers]

Hello,

If I contributed the below non deductible amounts to Tradition IRA, the total contributions come to $41,500. Should my basis while submitting the 2023 taxes be 41,500? (as additional information, I moved each contribution to Roth in the respective year)

2017 - 5,500 (did not report 8606)

2018 - 5,500 (did not report 8606)

2019 - 6,000 (did not report 8606)

2020 - 6,000 (reported 8606 but instead of setting basis to 23,000, I set it to 6,000)

2021 - 6,000(reported 8606 but again set the basis to 6,000 wiping all previous non-deductible contributions)

2022 - 6,000 (same as 2021)

2023 - 6,500  Finally, chance to correct the basis. Should this be 41,500?

[DanaB27 · Accepted solution]

No, if you converted the funds in the same year the contribution was for then you basis on line 14 of Form 8606 should be $0 (assuming all your all traditional, SEP, and SIMPLE IRAs were $0 at the end of each year). On line 1 of Form 8606 will be the current year nondeductible contribution.

If you made nondeductible traditional IRA contributions and conversions then you are required to file Form 8606. You can file the missing Form 8606 by itself. Please download the prior Form 8606 here (search for the year).

Technically you can be fined $50 for failing to file the form on time, but the penalty can be waived if you have reasonable cause. Please see Relief for Reasonable Cause for additional information.

[fanfare]

Each time you converted to Roth you used up that basis.

Just try to report correctly going forward.

Your 2023 Form 8606, should show that $6,500 being used up, leaving zero basis.

Form 8606 can be mailed by itself only when you are otherwise not required to file a tax return.

@VA_Is_ForLovers 

[VA_Is_ForLovers]

So just to make sure, if I contribute 6500 post tax (non-deductible) to Traditional IRA and convert it in the same year to Roth IRA (AKA backdoor conversion) then my basis on form 8606 will be 0?

The link below talks about the basis equalling the sum of all non-deductible contributions. That seems to be at odds with the advise I am getting from both responses.

https://smartasset.com/retirement/total-basis-in-traditional-iras

[fanfare]

Just to make sure, if your Trad IRA is empty, then after the action you described, basis is still zero when you convert the entire current value including any earning.

That's why you can do it again the next year.

@VA_Is_ForLovers 

[Opus 17]

---

@VA_Is_ForLovers wrote:

So just to make sure, if I contribute 6500 post tax (non-deductible) to Traditional IRA and convert it in the same year to Roth IRA (AKA backdoor conversion) then my basis on form 8606 will be 0?

The link below talks about the basis equalling the sum of all non-deductible contributions. That seems to be at odds with the advise I am getting from both responses.

https://smartasset.com/retirement/total-basis-in-traditional-iras

---

Let's go back to 2017.

If that was the first year you did a backdoor Roth, and you had no prior balance in any other traditional IRA account, then you would include a form 8606 with your 2017 tax return that would show:

Line 1 new non-deductible contributions	$5500
Line 2 prior basis	$0
Line 8 Roth conversions	$5500
Line 14 new carry-forward basis	$0

https://www.irs.gov/pub/irs-prior/f8606--2017.pdf

Then the same thing would be true for 2018, 2019, etc.  If you properly complete the Roth conversions in each year, then your starting basis and ending basis are zero every time.

The linked article is wrong in this situation because it only considers contributions and doesn't consider conversions ("backdoor" conversions). 

However, you should probably file all those missing form 8606s.  

[fanfare]

"However, you should probably file all those missing form 8606s.  "

I disagree.

[Opus 17]

---

@fanfare wrote:

"However, you should probably file all those missing form 8606s.  "

I disagree.

---

I'm curious about your reasoning for this, especially since, 

1. the form is required

2. there is a $50 penalty for not filing the form

3. If audited, the IRS does not have to treat the conversion as non-taxable unless the taxpayer can prove that the original contributions were non-deductible (using form 8606).

4. The statute of limitations never starts to run if you don't file.

5. The IRS says to keep copies of form 8606 "until all distributions are completed."

6. Intuit says to file the form.

https://accountants.intuit.com/taxprocenter/tax-law-and-news/nondeductible-ira-contributions-and-com...