Non-deductible IRA and 8606
In 2024 I contributed $7000 to a traditional IRA and immediately converted that $7000 to a Roth IRA. I have now received a 1099-R saying:
1 Gross distribution = $7000 and 2a Taxable amount = $7000
Then on freetaxusa it asks is this a roth conversion? I select YES and enter $7000 as the distribution conversion amount.
Here is where I am confused: When I review my 8606 that freetaxusa generated, is it saying:
- Line 1: $0 (non-deductible contribution).
- Line 2: $0 (basis from prior years, if applicable).
- Line 3: $0 (total basis).
- Line 14: $0 (remaining basis after conversion).
- Line 16: $7,000 (amount converted).
- Line 18: $7,000 (taxable amount).
But what it SHOULD be saying is:
- Line 1: $7,000 (non-deductible contribution).
- Line 2: $0 (basis from prior years, if applicable).
- Line 3: $7,000 (total basis).
- Line 14: $0 (remaining basis after conversion).
- Line 16: $7,000 (amount converted).
- Line 18: $0 (taxable amount).
Why am I getting these results?
Answers
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Hello, Brian.
This is a good observation. So, there is a screen where you will need to show that you have a basis in your Traditional IRA as of December 31. When you contribute after tax money to a Traditional IRA and then convert it to Roth, you have a basis (non-deductible amount) in your Traditional IRA and then that will tell the software to move the $7,000 out of Line 18. Often, you will need to tell the software where the amount came from.
There is a section of the FreeTaxUSA software that will report the Traditional IRA contribution. This is located in the Deductions/Credits > IRA Contributions. When you get past this screen, the software will apply the Form 8606 correctly.
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Thank you so much, CoryF. I suspected that it may have just been too early for me in the process. I will continue with the workflow once I have more documents and check that the software resolves the issue.
