I start out each year with a $0 balance in my Traditional IRA, make a non-deductible contribution to that IRA, put it in cash only, and then later in the same year convert that full amount to a Roth. Each year I get a 1099R. After entering this information in TurboTax, it asks my for my total non-deductible contributions I have made in prior years to my Traditional IRA. Do I have basis in my Traditional IRA, even though the end of year balance is zero each year? And does that number grow each year by the amount of the non-deductible contribution? In year's past I have been putting $0 as the basis for traditional IRAs and now I think that was a mistake.
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For several years we have been doing back door Roth conversions of our non-deductible traditional IRA contributions. The tax effect is pretty close to zero. All of our IRAs have been fully converted to Roths for several years, and at the end of each year, the balance in all of our Traditional IRAs is 0. Until this year - when we did a direct rollover of my spouse's 401 to a Traditional IRA with a balance of ~100K. Now as I work through the personal income section in TurboTax, it shows correctly on the 1099R and in Turbo Tax that the money from this was not taxable. As I complete the 1099R area this year, it asks if either of us made and tracked non-deductible contributions to our Traditional IRAs. I say we do, but enter 0 for the basis since in the past there was no balance in our Traditional IRAs (all were converted to Roths by the end of each year). And now for the question(s): In the past as I completed this activity, we had NO balance in Traditional IRAs and the Federal Tax owed didn't move up. This year, after we rolled over my spouse's 401K to a Traditional IRA, I have to enter the year end balance for all Traditional, Simple, SEP IRAs which includes her ~100K or so from the 401k. As soon as I do this the Federal Tax owed shoots up more than a $1000. I assume this has to do with the interaction of the back-door Roth conversion we did of her non-deductible IRA and the fact she now has a balance in a traditional IRA??? Am I entering or thinking about this incorrectly?
I am asking not only for this year but also for next tax year I will have a my employer 401k I will be rolling over to Traditional IRA, with a larger balance, and should I expect the same tax impact?
Thanks in advance for any insights the community can provide!
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