In 2025 I made the mistake of rolling over an old 401k into a traditional IRA, while also trying to do backdoor Roth IRA contributions (my income exceeds the standard limits for contribution). Due to now having a mix of pre & post tax dollars in my traditional IRA, my understanding is that making this conversion now triggers the pro-rata rule.
I contributed $7,000 of non-deductible post-tax dollars into my traditional IRA, then immediately rolled that $7,000 over into my Roth IRA which is held at the same institution. My attempt at the math to calculate my tax burden is as follows:
| 2025 Pro-Rata calcs: | |
|---|---|
| 2025 Post tax contribution/rollover | $ 7,000.00 |
| Remaining Traditional IRA Balance (as of 12/31/2025) | $ 38,059.06 |
| Total Traditional IRA monies | $ 45,059.06 |
| After-tax Percentage of IRA monies | 15.5352% |
| Tax-free portion of rollover | $ 1,087.46 |
| Taxable portion of rollover | $ 5,912.54 |
In order to properly reflect this on my taxes, my understanding is that my CPA must file Form 8606 to keep track of the pro rata table with the IRS so that if/when I do future rollovers and/or take distributions the money within is correctly characterized so as to not get double taxed. My CPA is telling me that he doesn't track this for any of his other clients, and that the IRS doesn't either and that I have no reason for concern…
I am hesitant to simply trust this advice and potentially compound this problem year over year if he is mistaken with his assessment. Is my CPA correct? Does anybody else have any experience with Form 8606, the pro-rata rule, and the IRS scrutiny associated with tracking the characterization of these funds? Any advice would be greatly appreciated. Thank you all in advance!
Posted by avin912
2 Comments
Yes, you need to include Form 8606 with your filing. Your CPA is either grossly mistaken or you’ve misunderstood what they’ve said.
Form 8606 is required to be filed with the 2025 federal tax return for several reasons: (1) to reflect the $7,000 nondeductible contribution for 2025, (2) to show the calculation of how much of the 2025 distribution/conversion is taxable, (3) to show how much nondeductible basis gets carried over to 2026, and (4) to show the $7,000 amount converted to a Roth during the year.
If Form 8606 is not included with the tax return, the IRS has a right to assume the $7,000 distribution/conversion is fully taxable.