I am so confused on 8606 form. Can anyone help me?

[tianwaifeixian]

I over-contributed to a Roth IRA a couple of years ago, so I had to recategorize the excessive contribution to a Traditional IRA. I let that money sit in the traditional IRA for a couple of years, which generated some gains. Anyway, I converted all of them to Roth IRA a few years ago and filed 8606. That conversion established a basis of $5575. Since then, I started doing backdoor Roth contributions —meaning I contributed the maximum allowed to a traditional IRA, then immediately converted it to a Roth IRA. Had no earnings between the contribution and conversion. And had $0 balance in any Traditional IRA at year-end.  It appears that every year, the basis (line 2) of my 8606 remains the same - it is always $ 5,575. Is that correct? And, what does that $5575 do at the end when I start to take money out of my Roth IRA? Do I need to worry about it at all? Thank you!

[tianwaifeixian]

can anyone help?

[AmeliesUncle]

---

@tianwaifeixian wrote:

 And had $0 balance in any Traditional IRA at year-end.

It appears that every year, the basis (line 2) of my 8606 remains the same - it is always $ 5,575. Is that correct? 

---

If you no longer have Traditional IRA balances (other than a brief contribution with the immediate conversion to Roth), you don't have any Basis and that number should show $0.

[fanfare]

A proper review of Form 8606 will show that any basis is reduced each year, according to its pro-rating calculation.

You have been filing incorrectly prepared forms.

@tianwaifeixian 

[baldietax]

sounds like you need to go back to the 8606 from your original contribution where the problems began...

"I over-contributed to a Roth IRA a couple of years ago, so I had to recategorize the excessive contribution to a Traditional IRA"

that should have established the basis in your IRA for the amount contributed

"I converted all of them to Roth IRA a few years ago and filed 8606. That conversion established a basis of $5575"

a conversion to Roth should have removed the basis in the Trad IRA, not established it.

if you have $0 balance in your IRA you have no basis.

[tianwaifeixian]

so at what step/which year the basis of $5575 will disappear? 

You can see from the attached that each year this $5575(line 14)

2019 Form 8606

2020 Form 8606 

will always be the basis carried to next year's 8606 

[tianwaifeixian]

Thank you! So if I recategorized $2500 from Roth IRA to Traditional IRA in 2013, and in 2019, the account balance is $5575. I converted all of them to Roth IRA. What is the right way to file 8606? thank you!

[baldietax]

this form is basically saying you had a $5575 loss in the IRA; you're still carrying a basis but the market value is zero.  I think you need to go back to the 8606(s) from the contribution when you unwound the excess Roth contribution, and the conversion of that.

[baldietax · Accepted solution]

ok I see so you the contribution in 2013 was 2500, and in 2019 you had a gain to value of 5575 converted to Roth along with 6k in backdoor.  this conversion contained a gain of 3075 which should have been taxable.

So you should have had an 8606 from 2013 onwards with a basis of $2500

then your 2019 8606 should show 6000 in line 1, 2500 on line 2 if that was your basis carried forward each year on those 8606s.  Line 3 and Line 5 are 8500.

Line 8 would be 11575

LIne 10 is now 8500 / 11575=0.734 

Line 11 = Line 13 is now 11575 * 0.734 =8500 - this is the amount of your conversion which is non-taxable

Line 14  is now zero and then your 5575 goes away

But line 16 should have been 3075, this is where you pay tax on the gain you had in the IRA.

I don't know what this means in terms of filing updated 8606s - or amendment and tax that was due for 2019 which is later than the 3 year amendment period; at the very least you probably need to send in updated 8606(s) for prior years which didn't affect the tax outcome and then when you file 2025 you won't have this 5575 any more.  This article refers to amending prior year 8606s just needs that form sent to the IRS it doesn't require an amended return

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/enter-backdoor-roth-...

[tianwaifeixian]

I am pretty sure I have paid the tax for that $3075 gain since the tax due number increased on Turbo tax.