Roth Distribution and Form 8606
I have a client(age 45) who redeemed $20,000 from his Roth IRA in 2016. He has $30,000 in aggregate contributions(basis) and a $25,000 Roth conversion from years past which totals $55,000 in basis. On Form 8606, line 22 does he report all contribution basis for his Roth IRA’s since opened( $30,000) or the basis for the $20,000 distribution which is $20,000? Also, does he need to report conversion basis on Line 24? I don’t know if the form is only looking for info to cover the $20,000 distribution. My concern is if he only places the basis for the $20,000 transaction and not aggregate contribution basis plus conversion basis it may pose a problem years down the road if the client performs another distribution. I feel placing all contribution basis on Line 22 and conversion basis on Line 24 makes sense regardless to have basis on file up to that point.
Permalink Submitted by David Mertz on Thu, 2017-07-06 14:54
These questions are explicitly answered in the instructions for Form 8606 (https://www.irs.gov/pub/irs-pdf/i8606.pdf) and on Form 8606 itself. Assuming that the client has never taken a Roth IRA distribution before 2016, enter on line 22 the entire $30,000 of regular contribution basis. Since the resulting entry on line 23 is zero, Form 8606 instructs to skip lines 24 and 25 (and not enter the conversion basis).