DanaB27
Expert Alumni

Get your taxes done using TurboTax

I reviewed your return. It seems as if you had rolled over pre-tax fund into your traditional IRA and therefore had a value on December 31, 2021. Please be aware that a backdoor Roth only works if your traditional IRA is empty. Since you had pre-tax funds in your traditional IRA the pro-rata rule applies and each distribution/conversion will have a taxable and nontaxable part. You can see the calculation on the "Taxable IRA distribution Worksheet". The rest of the unused basis to use in future years will be shown on line 14 of Form 8606.

 

If you plan to use the backdoor Roth strategy in the future then you might want to think about a reverse rollover where you rollover IRA money to a company plan, like a 401(k). Only pre-tax funds can be rolled from an IRA to a company plan. Therefore, you would isolate the basis and could start the Backdoor Roth procedure fresh. But it only works if your employer allows it, not all plans do.

 

@Blueberryblue

 

 

 

@town_james You will have to enter the recharacterization of the contribution for 2020 on your 2020 tax return. If you make it nondeductible then TurboTax will create Form 8606 with a basis on line 14 to carry over to 2021. The recharacterization for the 2021 contribution will go on your 2021 tax return. 

 

You will enter the recharacterization when you enter the contribution to the Roth IRA on your 2021 tax return (these steps will be the same for your 2020 tax return):

  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 “Roth IRA
  5. Answer “No” to “Is This a Repayment of a Retirement Distribution"
  6. Enter the Roth contribution amount 
  7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
  8. 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.
  9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (since 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 automatically and you only get a warning and then a screen saying $0 is deductible)

 

 

To enter the 1099-R conversion: 

 

  1. Click on "Search" on the top right and type “1099-R
  2. Click on “Jump to 1099-R
  3. Click "Continueand enter the information from your 1099-R
  1. 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
  2. On the "Your 1099-R Entries" screen click "continue"
  3. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
  4. Answer the questions about the basis from line 14 of your 2020 Form 8606 (should be $6,000) and the value of all traditional, SEP, and SIMPLE IRAs

 

Please see How do I amend my 2020 return? to enter your recharacterization of your 2020 Roth contribution. 

 

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