Need clarification on IRA total cost basis (on IRS form 8606), using an Example

[cyi88]

Hello,

As I was reviewing the last several years of my income tax returns generated in TurboTax, I noticed that the IRA total cost basis amount on the Form 8606 is always reset to $0 even though every year, I have always made contributions to my IRA and never made any withdrawals .

Is this total IRA basis of $0 right?? 

I have been trying to take a more active role in understanding taxes, and based on what I have learned recently, I think the IRA total cost basis amount is cumulative, or a running counter.

For the sake of example, let's say I opened an IRA in Tax Year 1, contributed to IRA $10 (that same year, Tax Year 1), then $20 (in Tax Year 2), then $30 (in Tax Year 3), then most recently $40 (in Tax Year 4). In filling out TurboTax, during March (of Year 5), I would then expect it to generate (on Line 2 of Form 8606): IRA total basis = $60

At least, that's what I think it should be-- I guess when I was doing my taxes in TurboTax previously, I may not fully have understood what total IRA cost basis meant.

Or have I still got this all wrong?

Thanks in advance!

I have a follow-up question. If it turns out I need to amend my Form 8606's total IRA cost basis, must I amend it for *EVERY* prior tax year as well?

[LindaS5247]

You should use your current IRA basis to file your 2024 tax return; it is cumulative.

Your basis is the total of all your nondeductible IRA contributions minus the total of all nontaxable IRA distributions received. It is to your advantage to keep track of your basis because it is used to figure out the nontaxable part of future distributions.

When you know your IRA's basis, you can determine how the amount of withdrawals you can take tax and penalty-free. Any withdrawals of the tax basis will be tax-free, but you could owe income taxes and a potential penalty if the withdrawal exceeds the basis.

You would have to look back at your prior year's tax returns to determine if your IRA's basis was properly reported to determine if you need to amend for prior years.