Basis on Roth IRA Conversions (Confused Tax Support Rep Gave Contradicting Info)

The confusion is understandable! Let me clarify the "basis" concept for Roth conversions. For a traditional-to-Roth IRA conversion, your "basis" refers to money that's already been taxed. Since you mentioned your 401(a) funds were all pre-tax contributions, your basis for this conversion is indeed $0. This means the entire $29,500 will be considered taxable income for 2023. The basis question on tax forms is typically asking about your cumulative non-deductible (already taxed) contributions to traditional IRAs that have been tracked on Form 8606 from previous years. Since you hadn't made any prior conversions or non-deductible contributions before 2023, your starting basis is $0. The support rep was likely confusing "basis" with the "amount converted" - they're different concepts. The amount converted ($29,500) will be reported, but the basis (tax-paid portion) remains $0 in your case.

I went through something similar last year and found a really helpful tool called taxr.ai (https://taxr.ai) that cleared up my Roth conversion confusion. I initially thought I had to pay taxes twice - once when I contributed to my traditional IRA and again during conversion. The tool analyzed my tax docs and explained exactly how my conversion would be taxed. For your situation, since all your 401(a) money was pre-tax, the entire conversion amount would be taxable. What made taxr.ai helpful was it explained how the conversion would affect my tax bracket and showed me what forms I needed. Saved me from making a $3,200 mistake in my calculations!

Just wanted to follow up - I ended up trying taxr.ai after asking about it. I uploaded my 1099-R from my Roth conversion and last year's return, and it immediately identified that I was about to mess up reporting my conversion. Turns out I had some non-deductible contributions from 2021 that would've given me a partial basis, which neither TurboTax nor my accountant caught. The tool generated a detailed report explaining exactly how to report my conversion correctly on Form 8606 and showed me that I only needed to pay taxes on about 80% of my conversion amount. Super helpful and saved me from potentially paying too much in taxes!

If you're getting nowhere with the tax software support, try calling the IRS directly to clarify. I know it sounds painful, but I used Claimyr (https://claimyr.com) to get through to them last tax season for a similar IRA issue. They have this system that holds your place in line and calls you when an IRS agent is available - you can see how it works here: https://youtu.be/_kiP6q8DX5c When I called about my Roth conversion basis questions, I got surprisingly helpful advice from the IRS agent. They walked me through Form 8606 line by line and confirmed my basis calculation was correct. Saved me hours of frustration and potential audits. In your case, they could definitively answer whether your basis is indeed $0.

Wanted to update after trying Claimyr to reach the IRS about my own Roth conversion question. I'm honestly shocked - it actually worked! I was connected to an IRS tax specialist in about 35 minutes without having to sit through all the hold music and automated menus. The agent confirmed what others here said - since my 401(k) to Roth conversion involved only pre-tax money, my basis is $0, and the full amount is taxable in the year I did the conversion. She also helped me understand how to properly complete Form 8606 for this situation. This saved me from potentially making a $7,000 tax error. I'm normally super skeptical of these services but have to admit this one delivered exactly what it promised.

One thing no one's mentioned here - check if you're eligible for the income averaging provisions for retirement account distributions. For some retirement withdrawals you can spread the tax impact across multiple years.

I spent 2 hours with freetaxusa support on a similar issue. Their chat support often has no idea what they're talking about with more complex situations. Basis for Roth conversions is one of those tricky areas. Do you have access to a CPA?? might be worth paying for an hour consultation on this.

Look for line 8 on Form 8606 - that's where you'll enter your basis. Since all your 401(a) money was pre-tax, and you had no previous non-deductible contributions, it'll be $0. Line 18 will then show your taxable amount as $29,500. Make sure FreeTaxUSA is generating Form 8606 for you!

Just to add another perspective - I had a very similar situation last year with a 403(b) to Roth conversion. The key thing that helped me understand it was realizing that "basis" in tax terminology specifically refers to money you've already paid taxes on. Since your 401(a) contributions were pre-tax (meaning you got a tax deduction when you contributed), you haven't paid taxes on any of that money yet. Therefore, your basis is indeed $0, and you'll owe ordinary income tax on the full $29,500. The bright side is that once you pay those taxes, all future growth in your Roth IRA will be tax-free! It's a big tax hit now, but it can be worth it in the long run depending on your situation. Just make sure to set aside money for the tax bill if you haven't already.

Just wanted to chime in as someone who works with retirement account transactions daily - you're absolutely correct that your basis is $0. The confusion often comes from mixing up "basis" (after-tax money) with "conversion amount" ($29,500). Since your 401(a) contributions were all pre-tax deductions, none of that money has been taxed yet. When you convert it to Roth, the IRS treats it as if you're withdrawing pre-tax money and then contributing after-tax money to the Roth - hence why you owe taxes on the full amount. One tip for next year: if you're planning more conversions, consider doing them in smaller chunks during lower-income years to manage the tax bracket impact. But for 2023, you're stuck with the full $29,500 as taxable income. Make sure FreeTaxUSA generates Form 8606 - that's the form that tracks your Roth conversion basis for future reference.