Backdoor Roth Conversion – Loss Balance and timing
In nov 2024 i opened and contributed $2000 to a Trad IRA. The balance is now ~1800 so a 200 loss and i have not converted yet. I don’t really want to carry a loss on 8606 forever can i just exchange the stock in my Trad IRA over to a money market to “clear the loss”? Since I am now converting in calendar year 2025 (hopefully this week). Does my 8606 for 2024 only need lines 1, 3,14 filled out? And then next year on my 2025 ill have lines 1,2,3,5,8,9,10,11,13 filled out? (i have no other accounts to pro rata me)
Permalink Submitted by Alan - IRA critic on Thu, 2025-01-30 15:06
Changing the investments in the TIRA will not change the loss, and the new investment could either gain back the loss or could lose more. You are not eligible to deduct the IRA contribution? If you are eligible you could deduct the 2000 on your 2024 return but would only owe tax on the 1800 converted in 2025. That avoids any pro rating or carrying forward basis on Form 8606.
If you cannot deduct the contribution due to income being too high, if you make ND contributions every year you will have to file an 8606 every year to report them along with any conversions done in those years and therefore tracking the remaining basis does not require an additional form. For 2024 your 8606 would have the 3 lines you mentioned completed. The amount on 14 (2000) would then carry forward to your 2025 8606, line 2.
In addition to the lines you listed, your 2025 8606 might have an amount on line 14, and you also need to complete lines 16-18, which summarize the taxation of your conversion.