Backdoor Roth Basis Question

[sjjmurphy46]

I have no money in a traditional IRA, all of my IRA money is in a ROTH IRA.  Because my income level is too high to make IRA contributions, I started doing a backdoor Roth in 2019.  

I may have not have input something right on my 2019 return, as my 2019 Form 8606 shows a basis of $6000, which is the amount of the non-deductible contribution I made to a traditional IRA I opened that year, then converted to the Roth.  The way I understand it now, the basis should have been zero, correct?  

Since TurboTax was tracking the basis, that basis amount carried over to my 2020 return.  Being new to doing the Roth IRA conversion, I didn't realize at the time that the basis on the 2020 tax year's 8606 may have been wrong as well.    

Since the contributions were non-deductible, and I haven't taken any distributions from the IRA, I don't think it will change my taxable income for 2019 and 2020, but do I have to go back and file amended returns for 2019 and 2020. before filing my 2021 returns, or can I just change the basis amount on my 2021 return?  

[RaifH]

It depends on what happened in 2019. Did you actually do the Roth conversion in calendar year 2019 or did you do it between January 1 and July 15, 2020 and count the contribution as a 2019 contribution?

If you did it after the end of calendar year 2019, your basis reported on your 2019 return in your traditional IRA would be $6,000. If you made another contribution in 2020 and converted both within 2020, your 8606 for 2020 would have 0 as the ending basis on Line 14 but 6,000 as the beginning basis on Line 2.

You can face a fine of $100 for over reporting your basis in your IRA, but I don't think that's what happened here. It looks like due to the timing differences between year-end and the contribution deadline, you did have some basis reported at the end of 2019. 

If you have a starting basis reported on Form 8606 for 2021 but did not make your 2020 conversion in 2021, then you did report something wrong in 2019 or 2020. 

[sjjmurphy46]

Thank You for the reply.  I’m starting to understand, but I still need some help.  Let me further explain what I did.  

on 2/26/2020 I made a non-deductible contribution of $7000 (vs. $6000 as previously stated) to a traditional IRA for the 2019 Tax year, and converted it to a Roth IRA on the same day (no capital gain).  Starting and ending value in the traditional IRA was zero.  For my 2019 return my 8606 form shows $7000 on line 1, zero as basis on line 2, and $7000 on line 14.  My 1040 for 2019 is blank for line 4a and 4b.   

On 3/22/2021 I made a similar transaction.  I made a non-deductible contribution of $7000 to the traditional IRA for the 2020 tax year, and converted to my Roth IRA the same day.  My 2020 return form 8606 shows $7000 on line 1, $7000 on line 2, and $14000 on line 3.  Line 14 shows $7000.  The 2020 form 1040 shows $7000 on line 4a and zero on line 4b.  Is this correct?  

That brings me to this year’s 2021 return.  

On 12/31/2021, I made a similar transaction as the other two, except for this all occurred in 2021.  I made a $7000 non-deductible contribution to the traditional IRA, and converted it to the Roth IRA on the same day.
In TurboTax, in the wages & income section, when I input $7000 for the Total Basis from my most recent 8606  form, it tells me that the IRA Basis TurboTax transferred from 2020 is different from the basis entered, and asks for an explanation.  Following your example above, should  my basis be zero now, because the latest transaction was made in 2021 for the 2021 tax year?  

Im trying to figure out if I did something wrong on my 2019 and 2020 returns, and make sure I’m doing things right on my 2021 return.  Depending on the basis entered this year, it changes my refund amount by $2240.

I’m more concerned about getting this right, vs. the size of the refund.  Any further assistance would be greatly appreciated.

Thank You! 

[DanaB27 · Accepted solution]

It seems you have entered the correct information on your 2019 and 2020 returns. The basis on Form 8606 seems accurate.  You should have a $7,000 basis from your 2020 Form 8606 carried over as a 

prior year basis. What does TurboTax state as a basis from 2020?

You will enter your contribution for 2021 ($7,000) and make it nondeductible and enter your Form 1099-R for the conversion ($14,000 if you didn't have any earnings). Your 2021 Form 8606 should have $7,000 in line 1, $7,000 in line 2, $14,000 on line 3, and then $0 on line 14 since everything was converted in 2021. The 2021 Form 1040 should show $14,000 on line 4a and zero on line 4b if you didn't have any earnings.

[sjjmurphy46]

Thank You!

TurboTax carried over a zero basis to my 2021 return.  Before receiving your latest reply, I double checked my 2019 and 2020 8606 forms, following the 8606 instructions, and everything seems correct, as you state.  

I also looked at the carryover worksheets that I printed for our records from our 2019 and 2020 returns.  The 2019 carryover amount shows $7000, but the 2020 carryover worksheet shows zero.  I think this is where the problem is.  Maybe TurboTax dumped the carryover amount somehow?   The way I understand it, it should be $7000, from line 14 on the 2020 form 8606.  

When I input the $7000 carryover manually, TurboTax says it doesn’t match the zero amount the program carried over, and asks for an explanation.  I put in the explanation that the correct amount of $7000 was not properly transferred in TurboTax.  I have read some other threads that indicate this may be an issue with the software?  

My last question is, will this flag anything with the IRS?  Entering it this way increases my refund by $2260, so I am happy to have caught this error, but I don’t want it to trigger an audit.  We always pay for audit defense, but never want to have to use it.  

Thanks for all of the help with this issue!

[DanaB27 · Accepted solution]

Yes, your 2020 Form 8606 basis on line 14 should be $7,000. To verify that I'm understanding correctly, your original filed 2020 Form 8606 shows the $7,000 basis on line 14 but there was somewhere an error importing the correct information.

Yes, if it was an import error then put in the explanation that the correct amount of $7,000 was not properly transferred in TurboTax. 

No, you filed everything correctly so there shouldn't be any issues if the IRS ever looks at it.

[sjjmurphy46]

Yes, the amount on the 2020 form 8606 line 14 was $7000.00.

Thanks for your help, Dana, and the quick reply this morning!  I can get my taxes finished now!