Back door Roth’s and Form 8606
Once you create a back door Roth aren’t you creating a situation where you are subject to or will eventually be subject to having to file Form 8606?
Once you have non-deductible assets from an IRA put into a Roth I was under the impression you have to track those assets as a percentage of the total IRA/Roth assets until all IRA and Roth accounts are fully Depleted?
Is anyone familiar with the Form 8606 requirements and the ability to avoid being subject to the continuous filing of the that form?
The way it has previously been explained to me is you cannot just simply create a separate non-deductible IRA, fund it one time, convert, close the IRA and move on. That IRA did exist and those non-deductible assets are forevermore mixed with all previously held IRA assets one has held in their name.
Permalink Submitted by Alan - IRA critic on Wed, 2022-03-30 18:47
You only need to file the 8606 when any of the 3 instructions on p 1 of that form requires it. If there is no such activity in future years, you do not need to file an 8606 for any of those years. For example, if you converted your entire IRA basis and have no basis left, you no longer have to file an 8606 until you add more basis. And depletion of your Roth IRA has nothing to do with your TIRA basis.
But you do need avoid transactions that trigger one of the 3 instructions above after you wind up your back door Roth conversions. Avoid having to complete Part I because that could result in a carryover basis amount on line 14 of your last 8606.
That said, under IRS practices of the last several years, if you did have a line 14 basis balance to carry forward, and you considered it too much of a hassle and decided to forfeit the basis, the IRS is not going to ask you to start filing the form again to claim some small amount of basis. They will gladly accept the small amount of double tax you might pay. In fact, the IRS has as much or more trouble with Form 8606 than taxpayers do.