Traditional IRA conversion to Roth IRA + Roth backdoor

[lyu]

Here are the sequence of events:

- on 4/7/2024, my tradition IRA had ~$700 in cash + some equity. All are from pre-tax money

- on 4/8/2024 I made $6,500 contribution for 2023 and $7k contribution for 2024, both with after tax money

- on 4/11/2024 I moved all the cash I had in my IRA ($14,200) to Roth IRA (my first attempt with Roth backdoor). 

- on 1/29/2025 I made $7k contribution for 2025 to my traditional IRA, with after tax money

- on 2/3/2025 I moved $7k from traditional IRA to Roth IRA

My income was above the deductible limit 2023-2025.

1) To start, if I did my taxes correctly, what should I see on my Form1040 & 8606 in 2023 and 2024?

2) I likely did the IRA part of my 2023-2024 taxes wrong and need to file an amendment for 2023 & 2024. What should I see on my form 1040 & 8606 in 2025, and what would my cost basis be on the forms?

I am using TurboTax Premier on Mac. I generally find the tax cost basis questions confusing as I am not sure what the cost basis should be for my traditional IRA & Roth IRA with the backdoor.

Would appreciate help and clarity. Thank you!

[baldietax · Accepted solution]

it helps to think of backdoor Roth in 2 separate parts, the contribution (limited, and can be backdated to prior tax year before tax filing deadline), and the conversion (not limited, but is taxed in the calendar year it occurs this part does not backdate to prior year)

so 2023 is pretty simple, all you did was a $6500 non-deductible contribution which will be reflected on Line 1 of your Form 8606, and Line 14 which is carried over to 2024 Form 8606 Line 2.

for 2024 you had the 2024 contribution of 7k on Line 1, 6.5k carryover basis on Line 2, total basis 13.5k. Assuming you fully converted to Roth and got the Trad IRA to $0 by 12/31/24, the end result will be 13.5k non-taxable in the conversion and $700 taxable (reflected on 1040 Line 4b), and $0 basis carryover to 2025.

for 2025 it should be pretty standard 8606 - 7k contribution on Line 1, no carryover on Line 2, 7k conversion, 7k non-taxable, $0 taxable (assuming again you didn't have any earnings left behind and $0 Trad IRA balance at year-end).

Suggest to work through the 2023 and 2024 calculations to confirm this outcome and $0 for your basis carryover in 2025.  I don't think you need to wait to file any amendments for 2023/4 before filing 2025 as long as you're certain of the $0 basis carryover for 8606 so you don't have to amend 2025 later.

For ref here are the steps for backdoor Roth entry tho question flow changed for 2025 on desktop so question verbiage on 1099-R may not apply for prior years but the general process remains the same.

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

[lyu]

Thank you for the detailed response. I do have some ETFs that have been in my traditional IRA account from my previous job, all made with pre-tax money. While I moved all the cash out to Roth IRA, the ETFs stayed in the traditional IRA account.

As far as I remember, this is the first time TurboTax explicitly asked about tracking the basis of both the Traditional & Roth IRAs (beyond contributions). Do I simply put down the balance of the accounts as of the Dec 2025 statements?

[lyu]

I just checked my tax filings for 2023 & 2024. 2023 seems fine.

For 2024, I didn't do the 2024 conversion right. How should form 8606 be filled? For question 3, do I answer No and skip the rest of Part 1, or Yes and continue? Below is a screenshot of my 2024 filing.

The taxable amount on my 2024 Form 1040 box 4b was $7200 (2023 contribution of $6500 and $700 that was already in the account) instead of $700. How do I fix this? 

Looks like I need to file an amendment for both form 1040 + 8606 for 2024. Does this mean I got over taxed in 2024 and would I automatically get a refund when I file the amendments? Anything else I should do and consider?

Many thanks again.

[baldietax]

ah so if you had a market value left behind in the IRA with ETFs that will affect the outcome of Form 8606, the Roth conversion will be taken in a pro-rata manner from your pre-tax and after-tax "basis" (non-deductible contributions) so you will pay some tax on the conversion in 2024 and carry over some basis to 2025.  Same thing will happen in 2025 taxes.  You never pay tax on the non-deductible contributions as they are withdrawn, it's a question to timing - they will be considered partially withdrawn until you bring the IRA to $0.

for the question about MV as of 12/31/24 (for 2024) and 12/31/25 (for 2025) you would use your year-end market value from brokerage statements.  You may also have Form 5498 for 2024 and can use that if you have it (should be the same), but for 2025 you won't get 5498s til May usually so use your December 2025 brokerage statements.  (IRS instructions for form 8606 line 6 refer to this).  Note this MV is the total across all your Trad IRAs if you have multiple accounts.

for 2024 I would expect Line 2 to show 6500, line 13500.  The * and blank lines indicate Turbotax is using a different worksheet which I think is similar to the 8606 questions, check your return PDF for that worksheet, but it should reference the MV and your $14200 Roth conversion.

I don't know your year-end MV but say it was $10k then that multiplier in the calculation (Line 10 or equivalent in the worksheet) will be 13500/(14200+10000) =0.558 so the nontaxable portion of the $14200 Roth conversion will be 0.558*14200 =7,923.60 (Line 13) and the taxable portion will be 14200-7923.60 =6,276.40.  Line 14 will be the basis remaining after the non-taxable portion on Line 13 so 13500-7923.60 =5,576.40.  This is what would carry forward for 2025 Form 8606 Line 2.  Again this is just an example.  

If you are going to be doing backdoor Roths going forward then depending the size of the ETF position you may want to convert it to Roth also to clear out the basis.  You're already paying some of the tax of converting it already, in place of the non-deductible contribution portion.

Hope that helps.  Just a final caveat that I'm not a CPA but this is my understanding based on what you've described.