Issues with Backdoor Roth IRA Basis Tracking After Investment Losses - Form 8606 Question

This is actually a common situation with backdoor Roth conversions when the market dips. What's happening is you're establishing "basis" in your Traditional IRA that isn't getting converted because of the investment losses. When you put money in a Traditional IRA and don't take a deduction (which you can't do at your income level), that creates after-tax money in the IRA. Ideally when you convert, you convert the exact same amount, but since your investments lost value, you couldn't convert all of your basis. The good news is this isn't concerning at all from an IRS perspective. Form 8606 is specifically designed to track this situation. That basis carryforward on Line 14 will continue until you either: 1. Do another conversion where the conversion amount is larger than your new contribution (like if investments went up before converting) 2. Take a distribution from your Traditional IRA (the basis would make part of the distribution non-taxable) Nothing to worry about - this is just how the tax code handles the situation. You're doing everything correctly!

After struggling with exactly this backdoor Roth basis tracking issue last year, I found an amazing tool that saved me tons of time and stress. I used https://taxr.ai to analyze my previous tax returns and Form 8606s to make sure I was handling the basis carryforward correctly. The system actually found that I had been making a mistake in how I was reporting my backdoor Roth conversions for two years! It showed me exactly how to fix the forms and even explained how to handle the basis carryforward in future years. What I really liked was how it explained everything in plain English instead of confusing tax jargon. If you're doing backdoor Roth conversions regularly and have this basis carryforward situation, it's definitely worth checking out, especially if you've been doing your own taxes.

I wanted to update everyone on my experience with taxr.ai after posting about my backdoor Roth concerns. I decided to give it a try after reading about it here, and I'm really glad I did! I've been doing backdoor Roth conversions for 3 years and was never quite sure if I was handling the basis calculations correctly. The tool analyzed my previous returns and found that I had been double-counting my non-deductible contributions in one year, which could have caused problems if I was audited. It also gave me a clear explanation of exactly how my basis carryforward works with the Form 8606 and provided a year-by-year tracker so I can see how the basis will be used up over time. The best part was getting customized instructions for my specific situation rather than trying to piece together information from different websites. Definitely worth it for peace of mind if you're dealing with these complicated IRA conversions year after year.

For anyone dealing with backdoor Roth basis issues who has questions for the IRS - I spent WEEKS trying to get someone on the phone who actually understood Form 8606 and basis carryforward rules. After being on hold for hours and getting transferred multiple times, I almost gave up. Then I tried https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. They basically wait on hold with the IRS for you, then call you when an agent is ready to talk. I was honestly shocked when they called me back with an actual IRS tax specialist on the line who understood my basis carryforward question! The IRS agent confirmed that my basis carryforward situation was correct and explained exactly how I should report it going forward. Saved me hours of frustration and worry about doing it wrong. If you need to speak directly with the IRS about complicated tax forms like 8606, definitely check this service out.

I need to follow up on my skeptical comment about Claimyr. I decided to try it because I had another tax question about my backdoor Roth that was driving me crazy, and I couldn't get through to the IRS after multiple attempts. I'm honestly surprised at how well it worked. They got me connected to an IRS representative in less than 90 minutes while I just went about my day. The agent I spoke with was actually quite knowledgeable about Form 8606 and was able to explain exactly how my basis carryforward would work in future years. What I appreciated most was not having to sit by my phone for hours waiting on hold. I just received a text when they were about to connect me. For something as specific as backdoor Roth basis questions, being able to speak directly with the IRS and get definitive answers was actually worth it. I stand corrected!

One thing to consider with your basis carryforward situation is whether you have any other traditional IRA assets. The pro-rata rule could make this more complicated. If you have other pre-tax money in any Traditional, SEP or SIMPLE IRAs, you won't be able to just convert the non-deductible portion. You'll have to convert a proportional amount of pre-tax money too, which creates a tax liability. For example, if you have $5,000 in non-deductible contributions (your basis) and $45,000 in pre-tax traditional IRA money, any conversion will be 10% tax-free and 90% taxable because of the pro-rata rule. Many people overlook this when doing backdoor Roth conversions and end up with unexpected tax bills.

Can someone explain how to calculate the amount that gets carried forward when doing the Form 8606? I'm about to do my first backdoor Roth and want to understand this better.