How to handle recharacterizations from Roth IRAs to non-deductible, traditional IRAs when calculating the basis of a Roth IRA

Several months ago I posted the following question and received the following answer (see original question and original answer below).  Thank you very much for the great answer.

I have one follow up question.  When factoring in a recharacterization from a Roth IRA to a non-deductible, traditional IRA in the calculation of the Roth IRA basis, do you use the recharacterization amount or the amount transferred (from the Roth to the non-deductible, traditional IRA), which is the recharacterization amount plus gains or minus losses?  Below is the original question and original answer.  Thanks.

ORIGINAL QUESTION AND ORIGINAL ANSWER:

How do you calculate and maintain the basis of a Roth IRA factoring in the following:

Roth IRA Contributions
Roth conversions from (non-deductible and deductible) traditional IRAs
Recharacterizations (from the Roth IRA to non-deductible, traditional IRAs). Note the recharacterizations to non-deductible, traditional IRAs are ultimately converted (through Roth conversions) to the Roth IRA.
Distributions from the Roth IRA
Thanks.

Submitted by Alan – IRA critic on Mon, 2025-03-03 10:27

Keep a cumulative tally of your regular Roth IRA contributions by year. When you recharacterize one from Roth to TIRA, eliminate the Roth contribution. If you recharacterize from TIRA to Roth add the Roth contribution to the tally.

Conversions must also be tracked by year, and each conversion should be split into the taxable and non taxable portions. Back door Roth conversions are typically non taxable or mostly non taxable.

Do not track gains. If you take a non qualified distribution, the regular contribution balance comes out first, then conversions by order of year. If you withdraw the entire balance of the regular and conversion contributions, anything additional will be from gains. For example, if you withdraw 10,000 and your regular contributions were at least that much, update the tally sheet to show that your regular contribution balance was reduced by 10,000. Most people do not withdraw from the Roth until age 59.5 and 5 years, after which the Roth is qualified and you no longer need to keep track of the contributions.

The tracking can be done with a simple tally sheet or spreadsheet set up by year. You need to remember to update it each year, maybe at tax time. If you do that, you will know at a glance the tax impact of any Roth distribution, but if you lose track and take a distribution, you will have to research the past history to report the distribution, and that can be difficult.

You should also keep the Form 5498 that you receive each year for which you made a contribution. They are issued in May of the following year. They show your regular contributions and conversions by amount, but will not break down the conversion by taxable v non taxable. That info comes from the Form 8606 that you file to report all conversions.