Complicated backdoor Roth IRA case + I forgot to file 8606 last year

[gabsk8r]

Hi all,

I contributed $6K (post-tax) to an existing traditional IRA before the 2022 tax deadline for 2021. This account had about $5K in it. I immediately converted the full $11K to a Roth IRA, thinking it would 'count' for 2021. Since this took place in 2022, I did not receive a 1099-R and I ended up not filing form 8606 for 2021.

Also in 2022, but after the 2022 tax deadline for 2021, I contributed another $6K (post-tax) to the same traditional IRA and immediately converted it to a Roth IRA.

In January 2023 I received form 1099-R stating $17K in boxes 1 and 2a (gross distribution and taxable amount, respectively).

Also in January 2023, I made another $6.5K (post-tax) contribution to a traditional IRA followed by Roth IRA conversion.

I'm in my 30s.

As I file my 2022 taxes, I think I have to:

• File form 8606 for 2021 including a letter explaining reasonable cause for missing it in last year's return. Here I will state I made a non-deductible $6K contribution to a traditional IRA.
• File form 8606 for 2022. Here I will state I made a non-deductible $6K contribution to a traditional IRA and a $17K conversion of which only $5K are taxable.
• Do nothing about the 2023 contribution and conversion.

This way I pay taxes on the $5K but not the other contributions with rollover.

Is this right? Please let me know if you need more information to provide advice and thanks in advance.

(edited to fix typo)

[DanaB27]

Yes, you will have to file a 2021 Form 8606 to report your nondeductible traditional IRA contribution for 2021. It is a good idea to provide a letter explaining the reasonable cause for missing it in last year's return to avoid the $50 penalty for not filling Form 8606 on a timely basis.  

You will have a $6,000 basis on line 14 of your 2021 Form 8606 that you will have to enter on your 2022 tax return when you enter your nondeductible traditional IRA contributions for 2022 (steps 8 and 9).

To enter the nondeductible contribution to the traditional IRA:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed $6,000
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 ($6,000)
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the 1099-R conversion ($17,000): 

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

Yes, if the value of all of your traditional/SEP/SIMPLE IRAs was $0 on December 31, 2022, then only the $5,000 will be taxable for the conversion.

Next year on your 2023 tax return you will repeat the steps to enter your nondeductible contribution for 2023 and the conversion you made in 2023.

[gabsk8r]

Thank you! Immensely helpful.

I think I follow — for now, do you think I should submit Form 8606 separately or together with my 2022 taxes?

[DanaB27]

You will have the 2022 Form 8606 with your 2022 return included. I assume you will e-file the 2022 return. And then you have to mail the 2021 Form 8606 with the explanation letter. 

If you plan on mailing your 2022 return then you can send the return and the 2021 Form 8606 together.

"If you aren’t required to file an income tax return but are required to file Form 8606, sign Form 8606 and send it to the IRS at the same time and place you would otherwise file Form 1040, 1040-SR, or 1040-NR. Be sure to include your address on page 1 of the form and your signature and the date on page 2 of the form." (IRS)

[gabsk8r]

Thanks again.

I'm on step (9) of you answer and wondering why the basis in the Traditional IRA from my 2021 Form 8606 line 14 is $6,000.

On "Let's Find Your IRA Basis", TurboTax asks me to input my "Total Basis as of December 31, 2021." At that point, it was just the $5K. I made the $6K contribution in 2022, albeit for the 2021 tax year—but if that's to be included, wouldn't my basis be $11K?

In short: I can see why my basis for 2021 would be $5K or $11K, but not $6K.

Please let me know if I'm missing anything—and thanks again.

[DanaB27]

A contribution made for 2021 from January 1, 2022, through April 18, 2022, is deemed to have been made on December 31, 2021.

No, your basis wouldn't be 11k, it is $6,000 (the after-tax contribution) unless I misunderstood and the 5k was also an after-tax (nondeductible) contribution in prior years. But I had the impression the 5k were pre-tax contributions.

If the 5k were also after-tax contributions then your basis would be $11k for prior years and none of the conversion would be taxable. But then you need to make sure that you filed Form 8606 when you made the $5,000 nondeductible contribution.

@gabsk8r