How to avoid change of Cost Basis?
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bp59272
Returning Member

How to avoid change of Cost Basis?

How to avoid change of Cost Basis? In 2017 I created a rollover IRA from a 401k plan that also had a small after-tax (nondeductible) amount. Turbotax didn't create Form 8606 in 2017. Ideally, I would have preferred to take a total distribution of nondeductible amount in 2017 and just rolled over deductible amount. In 2019, I did a partial withdrawal thinking that it will be tax free withdrawal from nondeductible amount in my IRA. It seems that I should have created form 8606 in 2017. Also, this withdrawal, causes me to change my IRA cost basis. It's also very confusing as I have other IRA and Roth IRA accounts. This new basis will be with me as long as I have an IRA. I have two questions: 1) How can I cleanup this mess and bring cost basis to zero, 2020 onwards? 2) Why Turbotax didn't create Form 8606 in 2017 during my tax filing?    

2 Replies
fanfare
Level 15

How to avoid change of Cost Basis?

Once you have a basis, as you said, it stays with the IRA(s) until you liquidate all IRAs.

Meanwhile Form 8606 computes the non-taxable part of any distribution. your basis goes down but only fractionally.

 

File a 2017 8606 with the IRS showing your correct basis.

OR,

abandon your basis. you will be taxed twice on that amount as time goes on, but maybe that doesn't matter to you if 8606 is a hassle.

bp59272
Returning Member

How to avoid change of Cost Basis?

Thank you Fanafare.

Can I file 2019 8606 instead of 2017, since I took a distribution in 2019?

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