Backdoor Roth IRA conversion multiple years

Forum|Forum|5 years ago
April 26, 2021
1 reply
6 views

Hi,

I have a situation very similar to https://ttlc.intuit.com/community/retirement/discussion/backdoor-roth-with-rechar-and-conversion-multiple-years/01/1879781#M122432 except I've not been able to figure out how to enter this into turbo tax.

Sometime in 2019: Contributed $2K to Roth IRA for Year 2019

2020 January: Realized 2019 income will be too high, so recharacterized $2K to IRA.

2020 January~April: Contributed $4K to traditional IRA and then backdoor converted to Roth for year 2019

Later in 2020: Contributed $6K to traditional IRA and backdoor converted to Roth IRA for year 2020.

As a result, I received 2 1099-Rs: One for $2xxx for the Roth IRA account (which I assume is for the recharacterization), and one for $14yyy for the traditional IRA (for the backdoor conversions).

Now when I go through entering the IRA contributions on turbotax, in the "tell us how much you contributed" screen it asks for how much I contributed in 2020 and I enter $6K (should I be entering $12K?). Which leads to the 1040 line 4b being $(14yyy-6000) = $8yyy, and hence my tax liability ends up being much higher than I'd hope. My understanding is that line 4b should be something like $(14yyy-12000) = $2yyy which is the capital gains I incurred between converting my IRA to Roth.

Could someone please help me in how to enter this properly in Turbo?

cc @dmertz apologies for the tag but since you seem to know how to deal with such situations would really appreciate any thoughts.

TurboTax Premier Online

Best answer by DanaB27

Please make sure that you reported the 2019 recharacterization correctly and made it nondeductible. If not then please see How do I amend my 2019 return?.

2019 tax return enter the traditional IRA contribution and recharacterization of the Roth IRA:

Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select "traditional IRA" and “Roth IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution
Enter the traditional IRA contribution amount of $4,000
Roth IRA question: Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
Answer “No” to “Is This a Repayment of a Retirement Distribution
Enter the Roth contribution amount of $2,000
Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the $2,000 contribution amount (no earnings or losses)
TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible and you only get a screen saying $0 is deductible)

A 2020 1099-R with code R belongs on your 2019 return but will not do anything on your return. But you can ignore the 1099-R with code R for the recharacterization since you can only enter the recharacterization as mentioned above.

On your 2020 tax return:

To enter the nondeductible contribution to the traditional IRA:

Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “traditional IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution?”
Enter the amount you contributed
Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” since you had a nondeductible contributions before this tax year.
Enter the $6,000 basis amount
On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount.

To enter the $14,000 1099-R conversion:

Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Click "Continue" and enter the information from your 1099-R
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”
On the "Your 1099-R Entries" screen click "continue"
Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
Answer the questions about the basis and value

Yes, only the $2,000 gain should show on line 4b as taxable amount if entered correctly.

DanaB27Answer

Level 15

Please make sure that you reported the 2019 recharacterization correctly and made it nondeductible. If not then please see How do I amend my 2019 return?.

2019 tax return enter the traditional IRA contribution and recharacterization of the Roth IRA:

Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select "traditional IRA" and “Roth IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution
Enter the traditional IRA contribution amount of $4,000
Roth IRA question: Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
Answer “No” to “Is This a Repayment of a Retirement Distribution
Enter the Roth contribution amount of $2,000
Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the $2,000 contribution amount (no earnings or losses)
TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible and you only get a screen saying $0 is deductible)

On your 2020 tax return:

To enter the nondeductible contribution to the traditional IRA:

Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “traditional IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution?”
Enter the amount you contributed
Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” since you had a nondeductible contributions before this tax year.
Enter the $6,000 basis amount
On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount.

To enter the $14,000 1099-R conversion:

Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Click "Continue" and enter the information from your 1099-R
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”
On the "Your 1099-R Entries" screen click "continue"
Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
Answer the questions about the basis and value

Yes, only the $2,000 gain should show on line 4b as taxable amount if entered correctly.

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rohitgAuthor

Level 2

Thank you @DanaB27. I got a similar suggestion from @dmertz's response on the other thread: https://ttlc.intuit.com/community/retirement/discussion/re-backdoor-roth-with-rechar-and-conversion-multiple-years/01/2232400/highlight/true#M149991

So looking at my current 2019 Form 8606, I see:

Line 1: $6000

Line 2: $0

Line 3: $6000

Line 14: $6000

And this tax return was also filed through my same turbotax account and it has the $6K amount I assumed turbo will pick it up automatically. But let me try to go through your steps to amend my 2019 return first.

rohitgAuthor

Level 2

Hi @DanaB27 I went through the steps you described for amending 2019 return and turns out I exactly did that last year (including adding the explanation etc).

The only screen that never showed up was your step 12 "Choose Not to Deduct IRA Contributions". It went from "Roth IRA Explanation Statement" -> Did You Open a Roth IRA Before 2019? (No) -> Income Too High To Deduct an IRA Contribution -> Your IRA Deduction Summary (which shows "Your IRA Deduction: $0")

So I assume I filled the 2019 return correctly?

Let me try your 2020 tax return steps now.