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I am realizing I messed up a previous backdoor roth - this is what my timeline looks like:

  • On 3/1/2020 Deposit 6k to Traditional IRA For Tax Year 2019
  • On 3/30/2020 Convert 6k to Roth IRA
  • On 12/31/2020 – 1099-R Form for 2020 generated by my brokerage with Box 1 Gross Dist=6000, Box2a Taxable Amount = 6000, and 2b taxable amount not determined.

This is what my taxes looked like:

  • 2019 Tax Return – Filed form 8606 with Box1 = 6000, Box3=6000, and Box14 (total basis in trad IRA)=6000
  • 2020 Tax Return – Form 1040 box 4a = 6000, 4b (taxable amount) = 0 (and ROLLOVER text placed next to box). No form 8606 filed.

My plan is to mail in the year 2020 8606 (which will show box14 being 0) asap - but I'm wondering if there's any harm in continuing to file my 2021 taxes? Specifically because I did another Trad IRA prior year contribution + conversion in April 2022, so when I file the 8606 for the 2021 taxes I will be listing my Prior Trad IRA basis as 0. So I am unsure if the lack of the previous 8606 will muck this up (e.g. if they haven't yet processed the missing 8606 that I submitted, they might disagree that I have 0 IRA basis...).

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  • If your carryover (out of 2020) is zero, you don't need form 8606 at all. It is only needed to track a non-zero amount of post-tax money within your IRA. If you don't file 8606, all remaining money in your IRA will 'become' pre-tax for the IRS - but if your total on 12/31 is zero, that doesn't matter.
    – Aganju
    Apr 17, 2022 at 21:41
  • @Aganju that makes sense - but just to confirm with the instructions on 8606 - it says specifically to use the form if "You took distributions from a traditional, SEP, or SIMPLE IRA in 2020 and you made nondeductible contributions to a traditional IRA in 2020 or an earlier year. For this purpose, a distribution does not include a rollover." This would also seem to indicate not to file the form 8606 in my situation assuming the traditional IRA -> roth IRA is considered a rollover. Is this accurate?
    – user67081
    Apr 17, 2022 at 22:04
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    I think you'll want to file 2020 Form 8606, Part II only. But overall I think you'll be fine. If the IRS does ask about it just explain what you did and that should be the end of it. You're in better shape than when people do a conversion without establishing their basis first.
    – Craig W
    Apr 17, 2022 at 22:37
  • @CraigW Ah you are right - i should've read Part II also. Do you think its worth filing the 8606 then still (and the potential penalty $50 fee) or just not worry about it?
    – user67081
    Apr 17, 2022 at 22:43
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    I would absolutely file 2020 Form 8606. From what I've heard they never charge the penalty.
    – Craig W
    Apr 17, 2022 at 22:45

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I would recommend filing 2020 Form 8606 by mail as soon as you can, and don't worry about any potential discrepancy with your 2021 tax return. You'll only be completing Part II of 2020 Form 8606 for the conversion. Although there is a $50 penalty for not filing Form 8606, it's unclear if that would be assessed for filing late, and I've never heard of it actually being charged anyway.

If the IRS at some point questions you about what happened, just explain and I'm sure that will be the end of it. The important thing is you filed Form 8606 in 2019 to establish your non-deductible basis, and you correctly reported the conversion on your 2020 1040 already. Also, it's possible even if the IRS noticed the discrepancy they would let it go because they'd think you'd underreported your basis for 2021, which would result in you paying more tax than you should.

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