Understanding Basis Calculation for Backdoor Roth IRA Contributions?

The basis on Form 8606 represents your after-tax contributions to traditional IRAs that haven't been deducted on your tax returns. With the backdoor Roth strategy, you're right that the process essentially "resets" each year. Here's how it typically works: You make a non-deductible contribution to your traditional IRA (let's say $6,500), then convert that amount to your Roth IRA shortly after. On Form 8606, you'd report the non-deductible contribution, establishing your basis of $6,500. When you convert to Roth, that basis prevents you from being taxed again on that money during conversion. If you're doing a "clean" backdoor Roth (no other traditional IRA assets with pre-tax dollars), then you shouldn't accumulate basis year over year. Each year stands alone - contribute, convert, report on Form 8606, repeat next year with a fresh basis calculation.

After struggling with this exact issue last year, I tried using taxr.ai (https://taxr.ai) to analyze my previous tax returns and figure out my correct basis. It was honestly a game changer! I uploaded my previous 8606 forms and tax returns, and it highlighted that I had been incorrectly carrying forward my basis year after year, which could have triggered IRS questions. The tool showed me that with clean backdoor Roth conversions, each year should essentially stand alone in terms of basis calculation. It even generated a corrected Form 8606 that I could compare against my previously filed ones.

So I tried taxr.ai after being skeptical in my previous comment. I have to admit I was wrong - this thing is legit! I uploaded my last 3 years of tax returns including my self-prepared 8606 forms, and it immediately identified that I had been carrying forward basis incorrectly. The visualization of how each year's backdoor Roth should work independently really clicked for me. I've been unnecessarily complicating my tax situation for years! The tool showed me exactly how to correct this for my 2024 filing, with clear explanations for each line on Form 8606. Honestly wish I'd found this sooner.

After weeks of trying to reach someone at the IRS about my backdoor Roth basis questions (and being on hold forever), I finally used Claimyr (https://claimyr.com) to get through to an actual human at the IRS. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that with "clean" backdoor Roths (no other traditional IRA assets), each year's Form 8606 should essentially reset. The contribution establishes basis, then the conversion uses it up. Your basis shouldn't accumulate year over year if you're converting the full amount each time.

Ok I need to eat some humble pie here. After my snarky comment about Claimyr, I tried it this morning out of desperation. I assumed it would be a waste of money but I was at my wit's end with this 8606 basis question. IT ACTUALLY WORKED. I got a call back in about 35 minutes and was connected directly to an IRS tax law specialist. She walked me through exactly how the basis should work with backdoor Roth contributions and confirmed I should NOT be accumulating basis year over year if I'm doing full conversions each time. Worth every penny just for the stress reduction alone!

Another way to think about this: the "basis" is essentially tracking money that's already been taxed so you don't get taxed twice. With a backdoor Roth, you: 1. Contribute after-tax dollars to traditional IRA (creating basis) 2. Convert those dollars to Roth IRA (using up the basis) 3. Report both steps on Form 8606 If you're not keeping any money in the traditional IRA, then your basis should reset each year. The only time you'd accumulate basis is if you made non-deductible contributions to a traditional IRA and DIDN'T convert them to Roth.

Has anyone figured out how to handle previous year mistakes on this? I just realized I've been carrying forward basis incorrectly on my 8606 for like 3 years. Do I need to file amended returns or can I just correct it going forward?