Yes, this does result in Split-Year Back Door Backdoor Roth since contributions and conversions occur in different tax years. ere are a few things to consider. First of all, I must caution you not to put in values that will make TurboTax happy. Just stick to the facts that are listed on your 1099 R but most importantly, make sure your 2023 and 2024 forms 8606 are correct. Let me give you a few tips to consider.
- Form 8606: This form is crucial for reporting nondeductible IRA contributions and conversions. You’ll need to ensure that both your 2023 and 2024 contributions are properly accounted for.
- 1099-R Forms: If you prepared two 1099-R forms (one for each year), make sure they are entered correctly in TurboTax. The distribution codes on these forms will determine how the conversion is taxed.
- Pro-Rata Rule: If you had any pre-tax money in your IRA before converting, the IRS may apply the pro-rata rule, which could result in unexpected tax liabilities.
- TurboTax Entry: When entering your backdoor Roth IRA details, ensure that:
- Your 2023 nondeductible IRA contribution is reported on Form 8606 for 2023. This means in looking at your prior year's 8606.
- Your 2024 contribution and conversion are reported correctly on Form 8606 for 2024.
For reference, I would suggest you read this guide as it's helpful to explain the context of Split-Year Backdoor Roth's. Now let's address the issue of the 8606, which is critical. This may be a reason why you received the error message regarding this year's Roth overcontribution. Here is how to properly fill out a form 8606 for 2023 and 2024. Every line listed here's a line item on Form 8606.
Part I: Nondeductible Contributions to Traditional IRAs
Line 1: Enter the total nondeductible contributions made to your traditional IRA for the tax year.
Line 2: If you have prior-year nondeductible contributions, enter the total basis from previous years.
Line 3-5: Calculate your total basis and contributions.
Line 6-12: If you took distributions from your IRA, report them here.
Line 14: This is your remaining basis that carries forward to future years.
Part II: Roth Conversions
Line 16: Enter the total amount converted from a traditional IRA to a Roth IRA.
Line 17: If you had pre-tax money in your IRA, this is where the pro-rata rule comes into play.
Line 18: This determines the taxable portion of your conversion.
Part III: Roth IRA Distributions
If you took distributions from a Roth IRA, report them here.`
If you find that your2023 Form 8606 was incorrectly reported, you will need to amend your 2023 to correct it before preparing your 2024 8606 to ensure a proper flow of information between the two years and to ensure everything is reported accurately to the IRS. Transparency is everything!!
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