Retirement tax questions

@Anonymous  @FangxiaL @pjz77 @l-andress  TT will automatically generate and fill out Form 8606 (Nondeductible IRAs) if you reported any of these on your tax return: Nondeductible contributions made to a traditional IRA. When you complete a Backdoor Roth conversion you MUST report it. When you go through the interview, the 8606 should be created during  the questions about basis.

If you decided to make the nondeductible contribution for 2021 and 2022 early in 2022  (since you can make a prior years IRA contribution up until tax filing), and convert both later in 2022, your form 8606 this year will just disclose the 2021 nondeductible contribution and when you file your 2022 taxes that form 8606 will have a nondeductible amount to carry over and a larger conversion amount.

Another note if you are married you and what one spouse has doesn’t impact the other’s ability to complete a Backdoor Roth conversion. That also means that if you both want to do this you have to file two 8606 forms. Do not list both your transactions on a single form.   

Another note be aware of aggregation rules the IRS has on IRA's. The IRS views all your IRA funds as one big IRA, even if they are in separate accounts. Example: You have $95,000 in an existing IRA and make an additional $5,000 nondeductible contribution to that, or any other IRA. When you try to convert that $5,000 nondeductible contribution to a Roth IRA tax free the IRS will say that only $5,000 of your $100,000 total (5%) has been taxed so only 5% can be converted tax free. This is known as the Pro-rata Rule. You have now moved $250 tax free to your Roth IRA but generated an additional $4,750 of taxable income at your considerably high tax bracket. To get around this rule if you do have other traditional IRA's is to go through your employer retirement plan such as a 401k. Your employer may allow you to roll your pre-tax IRA balances through them.