Keeping track of your Form 8606 IRA Cost Basis

I’ve been tracking the cost basis of my traditional IRAs for many years now and thought I would share how and why I do this in Money, in case you might want to add this useful financial data yourself.  I’m referring to the I.R.S. Form 8606 IRA cost basis, the calculation of which is completely separate from the actual Cost Basis of the individual investments within an investment account (which Money keeps track of on it’s own) and is defined as follows:

Add up all of your nondeductible contributions to all of your traditional IRA accounts to date. Subtract any previous nondeductible contributions that you’ve already removed from those IRA accounts. The result is your IRA basis.

This is how it shows up in my Portfolio Manager screen (click image to enlarge)…

click to enlarge

and it fluctuates each year in which you file Form 8606, to reflect a non-deductible contribution, conversion or distribution to/from your IRA accounts, so several years of inactivity could go by, before you realize that you’re in need of the current amount once again.  Until you’ve drained your last dollar out of all of your traditional IRA accounts, you won’t be done needing your current calculated cost basis.  This hopefully will be a few retirement decades later (unless you convert all of your traditional IRA account holdings to Roth IRA accounts).

I use H&R Block software to do my taxes, and I’m pretty sure it carries over the basis from year-to-year, but Turbo Tax apparently has a flaw in the software, causing it to silently discard the transferred-in basis information if you inadvertently answer NO, when asked if you made any nondeductible traditional IRA contributions.  Once discarded, the historical information is gone.  The only way to recover the information is to either manually re-enter the amount, or to start the tax return over and transfer in the historical information again.

Although you are required to save your most recently filed Form 8606, I find it much more convenient to keep a history of my TradIRA Cost Basis, and refer to that when the need arises.  As to why –  why not?  We track everything else that involves our finances, and Money makes it easy to view everything in our Portfolio review screens.  As you can see below, I haven’t taken a distribution from (or made an after-tax contribution to) any of my traditional IRA accounts since 2013 (you can’t get thousands of ObamaCare premiums subsidy dollars, if you increase your income with taxable money), so by the time I’ll finally need it again, my Cost Basis might otherwise be difficult to locate.

If you are younger than 59½, you should also keep track of your RothIRA Cost Basis, in case you find it necessary to make a sizable “early” withdrawal from one or more of your Roth accounts.

All you need to do is add the cost basis into your Watch account by creating a dummy transaction with zero shares of your Cost Basis “investment”…

and then select “Update prices > Manually” (first choice in the left column of the Portfolio manager screen) every year that the amount changes.

The memo field in the Portfolio screen is not the transaction memo, but rather the “Investment Details” memo, which in this case is:

✅ because my TradIRA accounts have a cost basis > $0, Form 8606 is used to prorate the non-taxable distribution amounts

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Keeping Track of Your Tax Brackets

[added 11/29/2022]
The aforementioned process works well for any other notes important to you.  For instance, keeping track of your taxable income brackets right there on your Portfolio screen, while doing your financial planning…

-ameridan