ira cost basis, not sure how to calculate this 8606 involved

Submitted by sandra player on Mon, 2025-03-31 20:10

Hello,

Here is my issue:

I contributed a non-deductable ira of 7500 for tax year 2023 on 4/9/24
I converted this ira to a roth on 4/16/24

I contributed to a non-decuctable ira of 8000 for tax year 2024 on 3/15/25
I converted this ira to a roth on 3/20/25

what is my cost basis for my 2024 tax return?
is it 7500?
is it 15500?
is it something else?

Odd in that turbo tax wants me to enter my cost basis for tax year 2023 as of 12/31/23 and this was zero, and I just have to enter 7500 to get this to account for the 7500 cost basis, even though this was after 12/31/23 contribution for the ira.

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Permalink Submitted by Alan - IRA critic on Mon, 2025-03-31 20:40

First, make sure that the last 8606 filed before 2023 was correct, as any IRA basis on line 14 of that former 8606 goes on line 2 of the 2023 8606.

Then be sure that the 2023 ND contribution of 7500 is shown on line 1 of the 2023 8606 and is added to line 2 if there is any basis brought forward from prior to 2023.

Your 2024 8606 will report the 8000 ND contribution on line 1 and the conversion done in 4/24. However, because you are making prior year contributions (not current year contributions), your 2024 ND contribution of 8000 made in 2025 is subtracted out on line 4, therefore the taxable amount of your 2024 conversion is not affected by the 2024 contribution that was actually made in 2025. If you examine the 8606, this may make more sense to you.

Your 8606 forms will be much simpler if you can accelerate your contributions to the current year. You could do that by also making your 2025 ND contribution before the end of 2025 and also converting that contribution before year end.

TTax still needs to know that you made a contribution for the year even if you make it in the next year, but then line 4 subtracts that out for purposes of determining the taxable portion of your conversions.

To your question, your basis for the 2024 conversion is 7500.