How to handle Backdoor Roth IRA basis carryover from investment losses?

So I've been dealing with this weird situation with my Backdoor Roth IRA for a few years now. Back in 2022, I invested in a Roth IRA like normal, but when tax season came around in 2023, I was shocked to find out I had exceeded the income limit. Total rookie mistake! I had to do that whole recharacterization thing to traditional IRA and then convert it back through the backdoor Roth process. Here's the issue - during the time my money was sitting in the account, the market took a dive and I lost about $350 in value. When I filled out Form 8606, the converted amount on Line 8 ended up being less than what was on Line 5. This caused Line 10 to be greater than 1, which got rounded down to 1.000, and I ended up with around $270 on Line 14 that gets carried forward to the next year. I've done this process again for 2023 and 2024, and the same thing keeps happening - I keep having this basis amount that carries forward year after year on Line 14. Is this going to be an issue? Does this carryover basis just stick around forever? Will the IRS flag this for some reason? I feel like I'm doing something wrong, but I've triple-checked the 8606 instructions and I think I'm filling it out correctly.

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19 comments

Sofia Gomez

•8M

What you're experiencing is completely normal with Backdoor Roth conversions that happen after investment losses. That carryover basis on Line 14 of Form 8606 is your nondeductible basis that couldn't be converted because of the investment losses. This basis will stay with you until you can use it up. Each year when you do another Backdoor Roth conversion, this carried-over basis gets added to any new nondeductible contributions on Line 2 of Form 8606. Eventually, when your investments gain value before conversion, you'll use up some of that basis. There's no time limit on how long you can carry this basis forward. The IRS won't flag this as unusual - it's actually a fairly common scenario, especially for people who converted during market downturns. Just make sure you keep good records of your Form 8606 each year so you can properly track your basis.

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Sofia Gomez

•8M

Yes, you could theoretically carry the basis forward indefinitely if you never have sufficient gains before conversion to use it up. There's no expiration date on nondeductible basis in traditional IRAs. When you have gains instead of losses before conversion, it actually doesn't work in reverse regarding the basis. If your investments gain value before conversion, you'd pay taxes on those gains when converting to Roth. Your basis would still transfer completely, but you'd owe taxes on any growth. This is why some people try to do the conversion quickly after the contribution to minimize potential taxable gains.

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Dmitry Petrov

•8M

I had the EXACT same problem last year dealing with my backdoor Roth. I got so frustrated trying to figure out the forms that I ended up running my taxes through https://taxr.ai and it was super helpful. The system analyzed my Form 8606 and explained exactly what was happening with my basis carryover from the losses. It confirmed I was doing everything right but also showed me how to track this basis from year to year. Apparently this is way more common than people think, especially with market volatility these last few years. The tool also helped me understand when this carried basis would eventually get used up with future conversions.

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Dmitry Petrov

•8M

For multiple years of carryovers, it actually combines all your historical Form 8606 data to maintain a running total of your nondeductible basis. It keeps track of each year separately but shows how they all work together. Really helped me stop making mistakes with tracking the accumulated basis. The calculations are very specific, not just general advice. It actually shows you a line-by-line breakdown of Form 8606 and explains why each number is what it is. It caught a mistake I made where I forgot to include my previous year's basis carryover on Line 2, which would have messed up my tax basis tracking for years.

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Miguel Castro

•8M

I was really hesitant about using another tax tool after getting burned by my regular software mishandling my IRA basis, but I tried https://taxr.ai for my complicated backdoor Roth situation. I'm actually impressed! It analyzed my multi-year basis carryover issue and showed me exactly where I went wrong in previous filings. Turns out I had been filling out Line 2 incorrectly by not including my prior year's basis. The tool explained how this impacts the tax treatment of future conversions and helped me understand when my basis would finally get used up. Now I feel confident I'm tracking everything correctly and won't have issues if I get audited.

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Zainab Ibrahim

•8M

After dealing with this exact Backdoor Roth basis carryover problem for YEARS, I finally got desperate enough to try calling the IRS directly. As expected, I spent literally hours trying to reach someone. It was impossible! Then I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they have this service that gets the IRS to call YOU instead of waiting on hold forever. I was seriously doubtful, but I was also at my wit's end with this basis carryover issue that kept rolling forward year after year.

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Zainab Ibrahim

•8M

It's not magic - they basically wait on hold for you in the IRS phone queue. When they reach an agent, they connect them to your phone. I was surprised too, but that's how it works. They have some system that handles the waiting so you don't have to. What shocked me is that it actually worked. I got a call back from an actual IRS agent within about 2 hours. I didn't have to sit there listening to hold music or worry about getting disconnected after waiting forever. The agent was able to confirm that carrying forward basis from year to year due to investment losses is completely normal and explained exactly how to track it properly on future forms.

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LunarEclipse

•8M

I feel like I need to update my comment. After being totally skeptical about Claimyr, I decided what the hell, might as well try it. I needed clarification on my carried-over basis from backdoor Roth conversions that's been rolling forward for 3 years now. To my complete shock, I got a call from an actual IRS agent about 90 minutes later! The agent explained that my basis carryover situation was normal and walked me through exactly how to handle it on future returns. They even sent me documentation about basis tracking that I didn't know existed. I've been stressing about this for YEARS and finally got a definitive answer. Sometimes being proven wrong is actually a good thing!

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Yara Khalil

•8M

For anyone dealing with this basis carryover situation, here's what I've learned after dealing with it for several years: 1. Keep ALL your Form 8606s forever - you need them to prove your basis 2. Make sure you're including the previous year's basis on Line 2 each year 3. The basis will eventually get used up in years when your investments gain value before conversion 4. There's no time limit on how long you can carry the basis forward The most important thing is consistency in your record keeping. The IRS computers will flag discrepancies if you suddenly change how you're reporting basis from one year to the next.

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Yara Khalil

•8M

You can absolutely file amended returns to correct your basis tracking. For IRAs, you generally have 3 years from the original filing deadline to amend returns. So if you just realized this now, you can likely still fix the past 2-3 years. I'd strongly recommend filing Form 8606 amendments for each affected year, starting with the earliest one first, then working forward. Each amended return will affect the next year's starting basis. It's a bit of a pain, but way better than permanently losing your basis and potentially paying taxes twice on the same money down the road.

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