Form 8606 questions

[vr_rastergraf]

For the first time last year, I made a distribution from my IRA.  TurboTax created a Form 8606. I discovered that it used as the Line 2 Basis a value for the IRA that it has been dragging from year to the next since at least 2006.  I looked at each of these years, and the number it used in the 8606 came out the IRA Worksheet. 

I think the IRA worksheet value was the what I had in my IRAs at some point in time. I must have filled out the IRA Worksheet and then never updated it as the value of the IRAs changed. At this point, the IRA has a good deal more in it. 

In 2006 and before, I was making annual traditional IRA contributions, usually up to the limit. That said, the value that TurboTax had in the IRA Worksheet was not some convenient round number,  so I am not sure if it was a number that I had plugged into it by looking at the balance of the all the IRAs I had and  which would have earned interest, and that would explain the not-round number.

Anyway, shouldn't I update 8606 Line 2 to the actual IRA basis as shown in my bank statement for the cost basis? Because the funds are in an investment account, the basis for everything is about 2 years old. 

The thing is, as I understand the form, going line by line, if I start out with a Line 2 basis of 0 as the 8606 instructions suggest doing, then Line 10 is a zero and of course Line 14 is 0 (I didn't make any non-deductible contributions or do any conversions). 

Using the old IRA worksheet value as the Line 2 basis doesn't make a lot of sense either - it seems like it should either be 0 or the current bank statement basis.

Thanks in advance!

[Mike9241]

your basis, line 2, is the amount of non-deductible contributions made to your IRAs. I would think IRA custodians would have no way of knowing whether your contributions were deducted or not. so I don't see how the bank can properly report your tax basis in its statements. it may be showing the total of contributions made.  There is no requirement to put noon-deductible contributions in one a/c and deductible in another. 

if you've been using Turbotax since you started making IRA contributions line 2 is most likely correct. 

you need to clarify the following since these are inconsistent'

the basis for everything is about 2 years old.

dragging from year to the next since at least 2006

the 8606 is only required in years you made non-deductible contributions which would show up on line 1 or take duistributions when you have a tax basis. Prior years non-deductible amounts should be on line 2, with the total on line 3 which should show up on line 2 in the next year's form until the year you start taking distribution then the carryforward amount would be from line 14. 

[dmertz]

The only way to verify that the amount on line 2 is correct would be to examine all of your past traditional IRA contribution records, particularly Forms 5498, and all IRA deductions and Forms 8606 shown on your past tax returns.  Absent the ability to do that, you would just have to assume that the amount that TurboTax has carried forward all of these years is correct.  Had you ever answered No to TurboTax's question asking if you ever made nondeductible contributions to your traditional IRAs, TurboTax would have silently deleted this information carried forward from past tax returns.

As Mike9241 said, the IRA custodian has no way to know your basis in nondeductible traditional IRA contributions.  A non-round number shown on line 14 of your 2006 Form 8606 suggests that you were covered by a workplace retirement plan for 2006 and your modified AGI for the purpose was slightly above the limit where a full traditional IRA contribution would be deductible.

Form 8606 is one of the forms that the IRS requires that you retain forever in case the IRS ever questions what you report as the nontaxable amount of any traditional IRA distribution.

Mike9241, I think that vr_rastergraf, is referring to the investments presently in the traditional IRA being 2 years old.  The purchase and sales history within a traditional IRA are meaningless with regard to anything on Form 8606.  Cost basis is irrelevant with regard to investments in an IRA.

[vr_rastergraf]

Hi,

Thanks very much for your answers.

I think I know what the problem is.

in 2013, we did a conversion from a Defined Benefit Plan Account to a traditional IRA.

However, I didn't do anything in the TurboTax IRA Worksheet, so it didn't/doesn't know

that the amount that is in the IRA is actually different from what it thinks it is.

So, now, if it were even possible, would the correct thing be to go back the the 2014 

TurboTax and do something in the IRA Information Worksheet to reflect this conversion
and the increase in the IRA value? 

The only thing is, I don't see any line items that really addresses this. There is Line 14
Rollover of nontaxable portion of a qualified retirement plan, but this isn't non-taxable.

 And there are lines 18 and 19

18 Enter the combined value of all traditional IRAs
(including SEP and SIMPLE IRAs) on 12/31/2022 (See Help)

19 If any amounts were recharacterized either to or from any
traditional IRA, enter the net amounts recharacterized after
12/31/2022.  (I was looking at the 2022 TurboTax worksheet).

So, filling out these lines would be relevant?

Or, just leave the whole thing alone and not worry about it?


(

[fanfare]

when you have a basis and convert, a portion will be non-taxable.

The only way to know the non-taxable part is by using Form 8606 for the year of conversion.

This will also give you a new prior years basis for the next time..

@vr_rastergraf 

[dmertz]

The rollover from the defined benefit plan to the traditional IRA in 2013 did not result in anything reportable on your 2013 Form 8606 and would not have resulted in any change to the information on the IRA Worksheet that needs to be carried forward.

If you did not make any after-tax contributions to the defined benefit plan, the rollover had no effect on your basis in nondeductible traditional IRA contributions.  In the unlikely event that you had made after-tax contributions to the defined benefit plan, the after-tax basis that was rolled over from that plan to the traditional IRA becomes reportable, with explanation, by an adjustment to line 2 of Form 8606 the next time you have reason to file Form 8606, which is apparently the 2023 Form 8606.