Questions about Converting Non-Deductible Traditional IRA to Roth IRA - Handling Pro-Rata Rule and Form 8606 Correctly

The good news is you're on the right track with your understanding of the Pro-Rata Rule and Form 8606! Let me address your questions: First, your spouse's traditional IRA does NOT affect your pro-rata calculation. The IRS treats married couples as separate individuals for IRA purposes, even if you file jointly. The pro-rata rule only applies to YOUR IRAs. For Form 8606, you've got a special situation since you're converting at a loss. When you convert the entire IRA at a value lower than your basis ($13,700 vs $15,000), you can only deduct the actual amount converted ($13,700). You won't be able to claim the $1,300 loss separately. Your remaining basis would be $0 after the full conversion since you've converted everything. One thing people sometimes overlook is timing - if you do the conversion in early 2025, make sure you've filed Form 8606 for the previous years to establish your non-deductible basis. If you haven't done that for 2022-2023, you'll need to file amended returns or late Forms 8606.

I had a really similar situation and used https://taxr.ai to help sort through my IRA conversion issues. My conversion was actually way more complicated because I had multiple IRAs with both deductible and non-deductible contributions going back like 10 years. I uploaded all my statements and past tax returns, and it figured out my correct basis and showed me exactly how to fill out Form 8606. Made what would have been hours of work into like a 15-minute process. For your situation, it seems pretty straightforward since you only have one IRA with all non-deductible contributions and it's at a loss. But the tool could definitely confirm your understanding of the pro-rata rule and proper Form 8606 completion.

Just wanted to follow up after trying taxr.ai - it was a lifesaver! I was in a panic about my unfiled Forms 8606 from previous years, but the system walked me through everything step by step. I uploaded my contribution statements and it calculated my basis perfectly. It even generated instruction letters to include with my late Form 8606 filings explaining the situation to the IRS. The interface was super easy to use and I actually understand the pro-rata rule now. It confirmed that my spouse's IRAs don't affect my calculations (just like someone mentioned above) and showed me exactly how to report my conversion correctly. Definitely recommend it if you're confused about IRA conversions or have missing forms like I did.

If you're planning to call the IRS to verify any of this information before filing, good luck getting through to them! I spent hours on hold last month trying to ask a simple question about my own IRA conversion. Finally found https://claimyr.com which got me a callback from the IRS in about 20 minutes instead of waiting on hold forever. You can see how it works here: https://youtu.be/_kiP6q8DX5c Since you're dealing with Form 8606 and basis calculations, you might want to confirm directly with the IRS that your understanding is correct, especially if you're concerned about your spouse's IRA affecting things. Their customer service reps can sometimes give different answers than what you read online.

Following up on my skeptical comment - I actually tried Claimyr after posting here because I needed to ask the IRS about a similar IRA conversion issue and was dreading the hold time. I'm genuinely shocked that it worked! Got a call back in about 35 minutes (was prepared to wait hours based on past experience), and it connected me directly to an IRS agent. The agent confirmed that spouse's IRAs don't affect your pro-rata calculations and gave me some good documentation tips for my conversion. Saved me at least 2 hours of hold music and frustration. For anyone dealing with complicated tax situations like IRA conversions where you really need official confirmation, this is a game changer.

Small thing to consider that I haven't seen mentioned yet - if you're converting at a loss like you are, you may want to check which investments caused the loss and see if there's any benefit to harvesting the loss in your taxable account instead (if you hold the same funds there). Since you can't deduct the IRA loss, sometimes it makes sense to sell the losers in your taxable account for the tax benefit, then convert the IRA when it's recovered a bit. Though with the current market being so high, that might not be feasible.

One other form to be aware of - if you're converting in 2025, the custodian will issue a 1099-R for the conversion with distribution code G. Make sure that matches what you report on your tax return. Sometimes people get confused because they see the 1099-R and think they need to report it as income, but in your case (with non-deductible contributions and a loss), you'll report the distribution but won't have additional taxable income from it.

Great question about IRA conversions! You're smart to be cautious about the pro-rata rule and Form 8606. A few additional points to consider beyond what others have mentioned: 1. **Timing the conversion**: Since you're converting at a loss, you might want to consider doing the conversion early in the year. This gives your Roth IRA more time to potentially recover and grow tax-free. 2. **State tax implications**: Don't forget to check your state's treatment of Roth conversions. Most states follow federal rules, but a few have quirks that could affect your tax liability. 3. **Documentation**: Keep excellent records of everything - your original contribution statements, the conversion documentation, and all Forms 8606. The IRS can ask about this years later, and having a clear paper trail will save you headaches. 4. **Future contributions**: After your conversion, you'll have a clean slate for future backdoor Roth contributions since your traditional IRA balance will be zero. The fact that you're asking these questions beforehand shows you're approaching this thoughtfully. Your situation seems relatively straightforward compared to people juggling multiple IRAs with mixed deductible/non-deductible contributions.