Remaining basis in T-IRA after losses | Ed Slott and Company, LLC

Remaining basis in T-IRA after losses

If a T-IRA's current total value is less than the basis (total of after tax amounts contributed over the years), and the whole balance is converted to Roth, and the total balance of all T-IRAs at the end of the year is zero:

(1) Form 8606 will still show a positive "remaining basis" on line 14 on account of losses in spite of zero T-IRA balance. Is this OK for tax returns in the current and future years?
(2) Has IRS dis-allowed deduction of these IRA losses after tax year 2018?

Thanks for your clarification.

  1. Your IRA basis will last for future use, as long as the most recent 8606 you filed shows it on line 14. However, you should not convert your entire TIRA if you want to preserve the unused basis because doing that will produce an 8606 without an amount on line 14. Leave a small balance in the TIRA, since that will force completion of Part I of Form 8606 and your remaining basis will show on line 14.
  2. Yes, the TCJA suspended misc itemized deductions subject to the 2% of AGI floor. Since such losses can no longer be deducted, it will be more beneficial to preserve the basis for possible future use. For example. if you have a former 401k that allows partial distributions and if you have remaining IRA basis of 10k, you could roll over 10k to the IRA and then convert it tax free, applying all your remaining basis.

Thanks for pointing out the way to use the remaining basis. I found that my current employer's 401k allows me to roll out a partial 401k balance to an IRA. I could do that to bring up the T-IRA balance to match the basis at the end of 2021, then add 7K after tax for the tax year 2022, and finally do a roth conversion for the entire balance before Dec 31, 2022. Of course I would have to zero out the entire IRA balance to make the conversion tax-free. This will also zero out the basis in my IRAs. Would this plan work?

Yes, if you have a 0 balance now in all your non Roth IRAs, you could roll over an amount from the 401k equal to the basis and add 7000 of non deductible contributions and convert the entire balance tax free, with the exception of any gains between that occur before the conversion. You could also convert just a portion tax free but no sense in doing that when you can convert the entire balance and get a larger amount into your Roth tax free. That would also eliminate the remaining IRA basis going into 2023, as you would then have a 0 TIRA balance again, but now with a 0 basis as well.

I believe there are no IRS limits on the amount of basis $ that can be converted to Roth in any given year. Can you please confirm? Thanks.

That is correct. There is no dollar limit on distributions and basis is applied to all distributions and conversions on Form 8606.


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