If my only TradIRA bal @12/31/18 was 4.9k(contrib 5.5k post tax $ in 2018 with a 600 loss) why am I subject to pro rata converting 5.5k post tax contrib made in 2017?

[mgoodman1]

I am paying tax again on post tax money.

[dmertz · Accepted solution]

Whatever amount of your basis can't be applied to your traditional IRA distributions remains with your traditional IRAs to be applied to future distributions.  You basis in nondeductible traditional IRA contributions can never be fully used until you have a zero total year-end balance in traditional IRAs.

[mgoodman1]

Thank you for responding. Still not understanding why I am paying tax (again) on a portion of the conversion when the entire conversion was made with post tax dollars. Although I had a balance at 12/31/18, that balance was all post tax so why does it trigger the pro rata rule?

If at 12/31/19 my trad IRA balance is 0, the pro rata will not apply and the entire conversion will be tax free?

[dmertz]

You aren't paying taxes twice.  Your distribution is a mix of nontaxable basis and taxable amounts from your traditional IRA.  Future distributions will also be a mix of taxable and nontaxable until you've received distributions of all nontaxable money from your traditional IRAs.  This will not occur until you have distributed all of the money in your traditional IRAs and no taxable or nontaxable amount remain in any traditional IRAs at year-end.  So yes, if you had no money in any traditional IRA at year-end the result will be that your final distribution will include the remainder of your basis.

Remember that for the purpose of determining the taxable amount, all of your traditional IRA accounts, including SEP, SIMPLE and rollover IRAs, are treated as a single account.

[mgoodman1]

Appreciate your patience

Understood, however my distribution was not a mix of pre and post tax dollars, jt was all post tax...which is why i dont get the pro rata. Sorry for being dense

I contribute post tax and converted post tax, only had one traditional ira and one roth ira which i converted to.

[dmertz]

I think I overlooked the fact that you made a $5,500 nondeductible traditional IRA contribution in 2018 *and* an earlier nondeductible traditional IRA contribution in 2017.  If that contribution in 2017 was *for* 2017, that means that your 2017 Form 8606 should have shown $5,500 on line 14 which transfers to 2018 Form 8606 line 2 to be combined with your 2018 contribution on line 1 for a total of $11,000 on line 3.  This would indeed make your $5,500 Roth conversion in 2018 fully nontaxable, leaving you with $5,500 basis in your traditional IRAs (2018 Form 8606 line 14).  Check your 2018 Form 8606 to see if the amounts I mentioned are present.

[mgoodman1]

Thank you. Ok starting to become a little clearer. Another factor to make things even more complicated was in 2017 I converted another IRA to Roth which was all pretax dollars (fully taxable at conversion then I subsequently closed that account and opened a non deductible IRA to which I contributed 5550 but did *not* convert until 2018, triggering the pro rata rule for 2017) I should have converted both accounts in 2017 to leave both accounts with zero at 12/31/17

Any hope for unbotching this? I may need to revisit my 2017 and 2018 8606 forms. My goal is every year to have 2 numbers on my 8606, my contribution limit and 0 to capture my backdoor roth conversions...with conversion in the same calendar year

[dmertz]

Particular traditional IRA accounts themselves are not deductible or nondeductible.  Your basis in nondeductible contributions applies in aggregate to all of your traditional IRAs in aggregate.  With regard to determining that taxable amount of any regular IRA distributions and conversions, these transactions are effectively treated as if they all happen on December 31 in a single account.

[mgoodman1]

Understood. I just named the accounts that way to tell them apart and remind me of their purposes.

[dmertz]

To sort all of this out, rather than talking in rather vague terms and bits an pieces about the timing of transactions, the dates, amounts of contributions (an the year for which a contribution is made), distributions and conversions would be helpful as well as the year-end balance in traditional IRAs each year.  I'm kind of lost at this point as to the details.  But keep in mind that this is a public forum, so you'll want to take into consideration how comfortable you are sharing details.

To summarize my understanding at this point, I think you have done the following.

1. At the beginning of 2017 you had no basis in nondeductible traditional IRA contributions but had a nonzero traditional IRA balance.
2. You made a nondeductible traditional IRA contribution of $5,500 for 2017 in 2017
3. You did a Roth conversion in 2017 with the taxable and nontaxable amounts calculated on Form 8606 (maybe involving Worksheet 1-1), leaving you with a nonzero 2017 year-end balance, so some of your basis from the $5,500 contribution for 2017 carried into 2018 (2017 Form 8606 line 14 carrying to 2018 Form 8606 line 2).
4. You made a nondeductible traditional IRA contribution of $5,500 for 2018 in 2018.
5. You did a $5,500 Roth conversion in 2018, leaving you with a $4,900 2018 year-end balance in traditional IRAs.

If all of this is correct, your 2018 Form 8606 would calculate taxable and nontaxable amounts on your $5,500 Roth conversion in 2018 and some of your basis would carry forward to 2019 along with the $4,900.

[mgoodman1]

First before I read and fully understand your response. Wanted to say THANK YOU for your patience and willing ness to help. I will revert back after taking in your response.

[mgoodman1]

you are exactly right with your synopsis so am confused why 8606 has taxable and non taxable amounts, as the 4900 balance as 12/31/18 is 100% post tax.

However, in 2019, I will have a zero balance in the Trad IRA on 12/31/19, and DURING 2019 will contribute 6000 FOR 2019 and convert it IN 2019. I understand there is no limit on how many conversions you can do in a year. Then in subsequent years repeat contribution/conversion with a zero balance on 12/31 all FOR that year IN that year. Hoping this simplifies and eliminates the taxable and non-taxable part of 8606

[dmertz]

The $4,900 balance is NOT 100% post-tax.  Your 2018 Roth conversion is partly taxable and partly nontaxable.  I think that you are forgetting that part of the basis from your 2017 $5,500 contribution applied to your 2017 Roth conversion done prior to the 2017 contribution, causing less than $5,500 of basis to carry forward to 2018.  With the sum of the basis carried forward to 2018 plus the $5,500 of basis added by your 2018 contribution being less than the sum of your $5,500 2018 Roth conversion and $4,900 year-end value, only some of the basis applies to your 2018 Roth conversion, leaving some amount of basis in your traditional IRAs along with the $4,900 year-end balance.

If you care to share the amount of your 2017 Roth conversion, I can tell you what you should be seeing on your 2017 and 2018 Forms 8606.

[mgoodman1]

My 2017 conversion was 22,043 from trad IRA pretax.

[mgoodman1]

Will the 8606 form ever be neat and clean or will it forever carry the additional basis? Will a zero balance at year end resolve? Obviously its the backdoor roth strateg