Just a heads-up based on personal experience: be VERY careful with your record keeping if you're doing Roth corrections or backdoor contributions. I messed up my basis tracking over multiple years and got hit with a CP2000 notice claiming I owed taxes on conversions that should have been tax-free. It took me months to untangle everything because I didn't have proper documentation for which contributions had been withdrawn as excess vs. which ones were converted properly. Make sure you keep ALL your 5498 and 1099-R forms indefinitely!

Based on your description, it sounds like you handled the excess contribution removal correctly by withdrawing before the filing deadline, which should have avoided the 6% penalty. However, there are a couple of areas that need attention: Your basis calculation is indeed incorrect. Since you withdrew the entire 2023 contribution of $1,500, that amount should NOT be included in your ongoing basis. Your basis should only reflect contributions that remain in the account - so for 2024, it should just be $7,000 (assuming you're eligible for the 2024 contribution). You should have received a 1099-R for the 2024 withdrawal showing the $1,530 distribution. The $1,500 principal portion isn't taxable since it was a return of excess contributions, but the $30 in earnings should be reported as taxable income on your 2024 return. If you're under 59½, those earnings are also subject to the 10% early withdrawal penalty. Make sure your IRA provider coded the 1099-R correctly - it should show code P or JP in box 7 to indicate "return of excess contributions." This helps the IRS understand the nature of the distribution. For 2024, double-check that your income still qualifies you for the $7,000 Roth contribution. If you're over the limit again, you'll want to address this before the filing deadline to avoid repeating the same issue. You likely don't need to amend your 2023 return if you properly reported the excess on Form 5329, but you should verify that your 2024 return correctly reports the earnings portion of the withdrawal as taxable income.

5 I messed up my backdoor Roth reporting last year and had to file an amended return. Make sure you keep track of your "basis" in the Traditional IRA across multiple years if you do this annually. Also, TurboTax really struggled with this - had to manually override some calculations.

Great question about backdoor Roth reporting! I went through this exact same confusion last year. You're absolutely right that you need Form 8606 - that's the key form you'll fill out yourself to report the non-deductible Traditional IRA contribution. Fidelity won't send you a separate form for that initial contribution, which is why you only got the 1099-R. Here's what I learned: Form 8606 Part I is where you'll report your $6,500 non-deductible contribution, and Part II handles the conversion to Roth. Since you converted right away with no earnings, the taxable portion should be zero. Just make sure to keep good records of your basis for future years if you plan to do this annually. One tip - double-check that you don't have any other Traditional, SEP, or SIMPLE IRA balances anywhere else, as those would affect the pro-rata calculation and make part of your conversion taxable. The IRS looks at all your IRA accounts combined when calculating the taxable portion.

This is such a helpful thread! I'm dealing with a very similar situation with my grandmother's estate and have been feeling completely overwhelmed by all the tax implications. Reading through everyone's experiences has been incredibly reassuring. One question I haven't seen addressed - does anyone know how this works if the brokerage account had both taxable investments and a small IRA component? My grandmother's account statement shows both types of assets, but I'm not sure if they get handled the same way for the stepped-up basis calculation. From what I've read in this thread, it sounds like retirement accounts have different rules, but I want to make sure I understand the distinction correctly. Also, for those who used professional tax help, roughly what did that cost? I'm trying to decide if it's worth the expense given that my portion of the inheritance isn't huge, but I definitely don't want to mess up the reporting and face penalties later. The complexity described here is making me think professional guidance might be the smart move even for a smaller inheritance. Thanks to everyone for sharing their experiences - this community has been more helpful than hours of trying to research this on my own!

This thread has been incredibly informative! I'm in a similar situation with my father's estate that just completed probate last month. One thing I wanted to add that might be helpful - if any of the inherited assets are dividend-paying stocks, make sure you understand the record date vs. payment date timing around the death. We discovered that my father owned several utility stocks that had declared dividends before his death but weren't paid until after. These dividends were considered "income in respect of a decedent" (IRD) as mentioned earlier and didn't get the stepped-up basis treatment. The executor had to include them as estate income, and we each got our share reported on Schedule K-1. Also, regarding the brokerage documentation, I'd recommend specifically asking for a "date of death portfolio statement" rather than just account values. Our broker (Charles Schwab) was able to provide this showing each individual holding with quantities, prices, and total values as of the exact date of death. This became our official documentation for the stepped-up basis calculations. The whole process definitely has a learning curve, but having all the right documentation upfront makes everything much smoother down the line. Best of luck working through everything with your sister and cousin!

Absolutely make copies of everything before mailing! I learned this the hard way years ago when the IRS claimed they never received some documents I sent (though that was a different situation). For something this voluminous and important, I'd recommend: 1) Scan or photocopy every single page before packaging 2) Store digital copies in multiple places (cloud storage, external drive, etc.) 3) Keep physical copies in a safe place for at least 3 years With 1000+ pages, the copying cost might seem annoying, but it's nothing compared to the headache of trying to recreate everything if the package gets lost or damaged in transit. Plus, having digital copies makes it much easier to reference specific transactions if the IRS has questions later. The peace of mind alone is worth the extra effort and cost!

As someone who went through a similar massive Form 8949 situation last year, I want to add a few practical tips that saved me headaches: First, consider breaking your submission into multiple packages if you're hitting over 1000 pages. The IRS can handle multiple packages for the same return as long as each one clearly references your e-filed return and includes your identifying information. Second, use page protectors for at least the first few pages (your 8453 and the first page of Form 8949). These documents are critical for connecting everything to your e-filed return, and you don't want them getting damaged or illegible during handling. Third, include your phone number and email on your cover letter. While the IRS rarely calls taxpayers directly, if there are processing questions about such a large submission, having multiple ways to contact you can prevent delays. Finally, mail early in the week (Monday or Tuesday) so it doesn't sit in a postal facility over the weekend. With that much paperwork, you want it moving through the system as quickly as possible after you send it. The three-day rule gives you some breathing room, but don't push it - mail as soon as possible after your e-file is accepted!

I went through this exact situation a few months ago! The IRS verification system is frustrating when you never got the letter in the first place. Here's what I learned from my experience: 1. **Phone verification is your best bet** - Call 800-830-5084 (Identity Protection Specialized Unit) early in the morning. I called at 7:05 AM EST and waited about 30 minutes. They can absolutely verify you without the 14-digit control number using alternative methods. 2. **Have these documents ready**: Previous year's tax return (they'll ask for your prior year AGI), Social Security card, government ID, and W-2s from the tax year in question. 3. **The "resend letter" option** takes 2-3 weeks typically, but honestly the phone route is much faster if you can get through. 4. **In-person appointments** at Taxpayer Assistance Centers are also an option, but you need to schedule ahead and they're often booked out 2-3 weeks. The phone agents have different verification protocols than the online system - they can use your tax history, personal information, and other security questions to confirm your identity without needing that letter. Don't give up on the phone option even if it's busy - persistence pays off with early morning calls!

I've been dealing with IRS verification issues for my small business and wanted to share another option that worked for me. If you're self-employed or have business income, you can also try calling the Business & Specialty Tax Line at 800-829-4933. They have a dedicated identity verification process for business taxpayers that sometimes moves faster than the individual line. Also, a tip I learned from my tax preparer: if you're married filing jointly and your spouse hasn't been flagged for verification, sometimes they can call on behalf of the joint return. The IRS agent will verify the spouse's identity first, then ask them to put you on the phone for your verification questions. This helped us get through faster since my spouse wasn't stuck in the same verification loop I was. One more thing - make sure you're calling the right number for your specific situation. The 800-830-5084 number is specifically for identity protection cases, but if you're dealing with a different type of verification issue, there might be other specialized lines that are less congested.