Need to correct form 8606?

Submitted by BarnabyJonesNap t3_z8yste in personalfinance

I have been doing backdoor roth conversions for a number of years. I think I made a mistake several years ago and somehow ended up with a basis in tradition IRAs (line 14), and so now that’s on all 8606s since then. The only times I have contributed to a traditional IRA is just prior to converting the whole thing to a Roth IRA, and never left any balance in there. I need to look back but my best guess is maybe one or two years I did the contribution and conversion twice after Jan 1 but before the deadline, so one for year 1 and the second for year 2 but both within the same calendar year.

How do I go about fixing or correcting this? I don’t believe I should have any basis indicated on form 8606.

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rnelsonee t1_iye838q wrote

Go back to the first year of your mistake, file an Amended Return (1040-X). Repeat for all years until it's fixed. It's not that hard, really, especially since this doesn't change your tax amount and amended returns can be done electronically now, provided you e-filed your 1040 and your software allows it.

> I did the contribution and conversion twice after Jan 1 but before the deadline

The deadline for conversions is December 31st. It's not like direct contributions where you have a choice -- if you made a conversion in the calendar year 2022, it was a 2022 conversion. But the good news is that shouldn't matter, just clearing it up.

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BarnabyJonesNap OP t1_iyeouu0 wrote

Thanks. Here is what I’ve pieced together looking back at my Vanguard account.

I had opened my first traditional IRA in 2014 and made a contribution. No Form 8606 and no further contributions to any IRA until 2017. 2017 I converted all of my traditional IRA to a Roth IRA. I then made a contribution to my traditional IRA and converted the entire thing to my Roth, leaving $0 in the tIRA. I filed my first ever form 8606 for the tax year 2017, which showed no basis.

2018 I made a contribution directly to my Roth IRA, no tIRA activity (still $0 balance). Form 8606 for tax year shows $5,500 basis. I assume this is the origin of the mistake?

2019 I did some strange things, probably because I confused myself. I believe what I did was attempt to recharacterize the 2018 Roth contribution in March 2019 to a tIRA and then reconvert that back to my Roth IRA. Maybe thinking I was over the income limits to have made the direct Roth IRA conversion. Whatever the reason, that again left $0 in my tIRA and everything in the Roth IRA. I later made a contribution to my tIRA in January 2020 for the tax year 2019, and then converted that to my Roth also in January 2020 (I understand the contribution would show on my 2019 taxes but the conversion on the 2020). My Form 8606 for the tax year 2019 has $6,000 basis. No tIRA balance at end of year 2019.

2020, I made another contribution for the tax year 2020 to my tIRA and converted that to my Roth IRA. My Form 8606 for the tax year 2020 has $5,999 basis. $0 in tIRA end of year.

2021, I made a tIRA contribution, then converted the entire amount to my Roth IRA. Form 8606 again shows basis of $5,999. $0 in tIRA at end of year.

How would I fix this?

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rnelsonee t1_iyew63b wrote

> I assume this is the origin of the mistake?

Yeah, sounds like it.

So yeah, just start with 2018 and put the basis to $0. This $0 cascades forward. April 2020 was the first year 1040-X could be electronically filed so this might not be that bad.

It's probably not a huge risk to just keep it correct going forward. Outside of an audit, no one will care if past 8606's are wrong, and if you do get audited, you have the facts on your side.

If it were me, and I could do it all electronically, I'd pour a glass of wine and spend half an hour submitting 1040-X's. If I couldn't do it electronically, I probably wouldn't bother.

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BarnabyJonesNap OP t1_iyezl0q wrote

I’ve never done an amendment before. Bummed that free fillable forms is gone. What’s the best way to dk that?

Or assuming I don’t file any amendments and sort of just fix it going forward, how would I do that, say with FreeTaxUSA or similar?

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nolesrule t1_iyem5dr wrote

If you are converting every year and leaving nothing in the account, the carryover basis should be zero. If that was the case that there was zero in the account on Dec 31, 2021, I'd just proceed with a fresh 8606 for 2022 and not worry about past years.

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BarnabyJonesNap OP t1_iyeoxsj wrote

See my response above. Do you think I need to amend?

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nolesrule t1_iyes8eh wrote

So if you are doing the math correctly, if Line 6 is zero it's impossible to have anything other than zero on Line 14.

If that's the case, I don't think I would bother amending anything at this point and would just make sure the 2022 form has a zero in Line 2 instead of carrying over the number from line 14 of the 2021 form.

If the IRS sends you something about it in the next few years then deal with it. But I've read elsewhere that they don't compare the 8606 year to year. If the 2018 and 2019 combination of events had screwed things up you would have already gotten a CP notice by now.

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BarnabyJonesNap OP t1_iyev1yz wrote

What was pointed out tk me that I think is correct is the fact that I did 2 contributions and 2 conversions in calendar year 2020, one contribution for year 2019 and one for 2020, and the conversions both show in 2020 8606. So maybe line 8 on the 2020 8606 should have been 12k instead of 6k to zero that out?

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