Form 8606 Basis
I have been tracking my basis (for non-deductible contributions) in my traditional IRA on Form 8606 for several years. So, I receive a portion of my annual Roth Conversion as non-taxable. Next year, I would like to make a Roth conversion that would bring my traditional IRA balance to zero and use up all of my basis.
However, I would also like to rollover my 401(k) into my traditional IRA and make an additional Roth Conversion. This would mean that on the Form 8606, I would have to list a year end balance for my traditional IRA and it would appear as if I still have a basis. Is there a way around this?
Permalink Submitted by Alan - IRA critic on Thu, 2021-12-23 16:15
Only by not rolling the 401k balance into your TIRA unless you plan to convert that in 2022 as well. With the 401k rollover, part of your present basis will remain in the TIRA, meaning that the first conversion will be partially or even mostly taxable. While there is limited time, if your current basis is a significant portion of your balance, you might convert all or part of that this year, as that would apply all your basis to this year’s conversion. Then when you roll over the 401k next year that is 100% pre tax, there is no need to convert it unless you are willing to pay the taxes.
Another option if you do not want any additional taxable income for 2021, is to delay the first conversion till 2022 and delay the 401k rollover until 2023.
You might use a copy of the 8606 to work out various scenarios using your actual numbers.