Total Basis in Form 8606

[user1899]

I have some very basic questions (I searched but somehow I can't find the answers).

1. I have read that TurboTax automatically generate Form 8606 for me. Where can I see that? (I have input 1099-R and related information but I haven't submitted my tax return yet.)

2. Regarding the "total basis" on Form 8606, my understanding is that "total basis" refers to the portion of my IRA that has already been taxed. The higher this "total basis" is, the less $ I would get double-taxed.

Let's say I contributed after-tax $7k to my Traditional IRA, and I converted that $7k to Roth IRA (within the same month). My Traditional IRA has accrued $10 interest.

So, if I file 8606 myself, line 13 would be $7000 / $7010 * $7000 = $6990 while line 14 would then be $7000 - $6990 = $10. That means the nontaxable portion of all my distributions (line 13) is $6990 while my total basis (line 14) is $10.

According to the definition above, total basis is the portion that has already been taxed, then how come it's just $10? 

3. As stated in the previous point, the $7k contribution is after-tax, and the only pre-tax amount in my Traditional IRA is just $10. Following the pro rata rule, my $7k conversion to Roth IRA should be taxed very minimally. However, looks like TurboTax taxes my $7k (which makes that double-taxed). Is that because of line 14 being $10? Where / how should I correct this?

Thank you so much for your help!!

[DanaB27]

1. Please follow these steps below to see all your forms including Form 8606. Please note, you might have to pay first to be able to view all forms.

1. Select Tax Tools on the left and then Print Center 
2. Select Print, save or preview this year's return

2. Yes, the basis is the portion that has already been taxed. Line 14 lists the total basis that is still remains in the Traditional IRA. You used $6,990 of your basis for the conversion and therefore have a $10 basis remaining in the Traditional IRA to use for future years.

3. When you look at line 18, then you see only $10 are taxed from your conversion. This will carry over to line 4b of Form 1040.

Note, it future when you perform a backdoor Roth is is generally best to convert the gains too.

[user1899]

Thank you so much, @DanaB27 , for your reply!!

1. Yes, I can see the Form 8606 that TurboTax prepared for me!

2. and 3. Please bear with me... just to help me understand the meaning / purpose of Line 14 and 18... In this example:

    a. Do you mean only $10 (Line 18) is taxed for my conversion in this 2024 Tax Return filing, and I am not double-taxed the whole $7000 amount?

    b. So Line 14 Total Basis has no bearing in the 2024 Tax Return but it will be used in 2025 Tax Return?

3. Now I can see the Form 8606 TurboTax prepared, and I think I can see the problem better. My real situation is:

• 2024 April: Contributed after-tax $6500 to Traditional IRA for year 2023
• 2024 April: Contributed after-tax $7000 to Traditional IRA for year 2024
• 2024 April: Convert $13500 from Traditional IRA to Roth IRA
• 2024 Dec: Traditional IRA incurred $16 interest, and that's my remaining balance for Dec 31

On my auto generated Form 8606:

• Line 1 is empty
• Line 2 is 6500
• Line 6 is 16
• Line 8 is 13500
• Line 13 is 6492
• Line 14 is 8
• Line 18 is 7008

     a. Seems like it doesn't know that I have contributed after-tax $7000. Why is that?

     b. I have uploaded my 1099-R . Even though my whole 13500 is after-tax contribution, 1099-R shows 13500 in both Box 1 and 2a, and 2b have both boxes checked. Is that why? How can I tell TurboTax that that 13500 is actually after-tax, so they are not taxable contribution?

     c. This is the first year I have this Traditional IRA account and performed a conversion to Roth IRA, how should I fill out those steps after uploading 1099-R so that I wouldn't be double-taxed the 13500? 

Thanks you so much again for your help!!

[DanaB27]

2. a) Yes, only the amount shown on line 18 is taxed for the conversion. You are not double taxed. 

b) Yes, that is correct. 

3. It seems you didn't enter your nondeductible Traditional IRA contribution for 2024. Please follow these steps to enter the nondeductible contribution to the traditional IRA for 2024:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2023 Form 8606 line 14 (if you had a basis in the prior year)
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

[user1899]

Thanks again, @DanaB27 !

Quick question, for step 6, should I enter 13500 or 7000? My understanding is that I can contribute and rollover 2023's $6500 + 2024's $7000 without penalty. I enter 13500 and it says I have penalty due to over contribution. Btw, do I still need to upload 1099-R if I take those steps listed in your reply?

Thank you so much @DanaB27 !