DanaB27
Expert Alumni

Deductions & credits

If you rolled over pre-tax funds from your 401k in your traditional IRA then the pro-rata rule applies. This means that with each distribution/ conversion you will have a taxable and nontaxable part.

 

TurboTax is correctly using the pro-rata rule. It doesn't matter that you converted the funds before you rolled over the 401k. Timing doesn't matter, it only counts that you had still a balance on December 31, 2024. 

 

Form 8606 line 6 instructions state: "Enter the total value of all your traditional, traditional SEP, and traditional SIMPLE IRAs as of December 31, 2024, plus any outstanding rollovers. A statement should be sent to you by January 31, 2025, showing the value of each IRA on December 31, 2024. However, if you recharacterized any amounts originally contributed, enter on line 6 the total value, taking into account all recharacterizations of those amounts, including recharacterizations made after December 31, 2024."

 

The Backdoor Roth only works if your traditional/SEP/SIMPLE IRAs do not have any pre-tax funds in the account at the end of the year.  If you plan to use this strategy in the future 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.

 

 

If you rolled over any nontaxable portion of your qualified retirement plan to a traditional, traditional SEP, or traditional SIMPLE IRA that wasn’t previously reported on Form 8606, line 2, include the nontaxable portion on line 2 (Form 8606 line 2 instructions).

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