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How do I calculate year-end IRA basis after doing a partial backdoor Roth conversion?

Forum|Forum|7 years ago
June 5, 2019
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In 2015, I had 3 accounts: a rollover IRA, a traditional IRA, and a Roth IRA. On 12/31/2015, my rollover IRA had a balance of $50k. In early 2015, I did a backdoor Roth conversion of $5k, which still left my traditional IRA with no balance. However, of the $5k backdoor, I had to pay taxes on $4,545 of the conversion because I had a mix of taxed and untaxed money. I'm fine with all that. My question though, is what is my IRA basis at the end of 2015? TurboTax is telling me it's $4,545, but I don't understand why the amount is equal to the taxable amount of the conversion if that money has already been converted to a Roth. Also, if I made no contributions or withdrawals to any IRA's in 2016, what is my IRA basis at the end of 2016? Thanks.

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Best answer by dmertz

This is correct. You made a $5,000 nondeductible traditional IRA contribution in 2015. Because your $50k balance in your rollover IRA resulted on only $455 of your basis being applied to your $5,000 2015 Roth conversion, leaving $4,545 taxable, the rest of your basis from the $5,000 nondeductible contribution, $4,545, remained in your traditional IRAs (2015 Form 8606 line 14). Said another way, only $455 of your basis was converted to Roth, the remainder of your conversion came from pre-tax money in your traditional IRAs. (For tax purposes, your traditional IRAs are treated in aggregate.)

The $4,545 carries forward line 2 of the next Form 8606 that you must file, whenever that may be. Since you made no contributions for 2016 and no distributions in 2016, you won't have a 2016 Form 8606 and your $4,545 of basis that you still had at the end of 2016 will continue to carry forward. Until you have a zero balance in traditional IRAs at the end of some year, you will always have some amount of basis in your traditional IRAs that you will need to track on Forms 8606 for any year that you do make new nondeductible contributions or make a distribution (including Roth conversions).

D

dmertzAnswer

Employee

This is correct. You made a $5,000 nondeductible traditional IRA contribution in 2015. Because your $50k balance in your rollover IRA resulted on only $455 of your basis being applied to your $5,000 2015 Roth conversion, leaving $4,545 taxable, the rest of your basis from the $5,000 nondeductible contribution, $4,545, remained in your traditional IRAs (2015 Form 8606 line 14). Said another way, only $455 of your basis was converted to Roth, the remainder of your conversion came from pre-tax money in your traditional IRAs. (For tax purposes, your traditional IRAs are treated in aggregate.)

The $4,545 carries forward line 2 of the next Form 8606 that you must file, whenever that may be. Since you made no contributions for 2016 and no distributions in 2016, you won't have a 2016 Form 8606 and your $4,545 of basis that you still had at the end of 2016 will continue to carry forward. Until you have a zero balance in traditional IRAs at the end of some year, you will always have some amount of basis in your traditional IRAs that you will need to track on Forms 8606 for any year that you do make new nondeductible contributions or make a distribution (including Roth conversions).