Hi experts! I'm running into an issue with the backdoor roth strategy that we started in 2023. Trying to summarize the steps and where I am stuck:
My wife and I each did the backdoor roth contributions for 2022 ($6000) and 2023 ($6500) IN 2023 (due to disasters in CA, we were able to do 2022 contributions until October 2023 with the extended tax deadline).
Fidelity issued us each a form 1099-r that states $12,500 as gross distribution (field 1) and taxable amount (field 2a).
TurboTax is now stating the $12,500 each as income (25k total) and taxing us for it. I can add the $6500 contributions each for this year, which will reduce the tax burden, but the $6000 each from 2022 remains taxed.
In 2022, our total income was below the threshold for non-deductible contributions for my wife since she does not have a work retirement account (see https://www.irs.gov/retirement-plans/plan-participant-employee/2022-ira-contribution-and-deduction-l...), which means, amending 2022 taxes would give us a small return (~1300 federal, 600 state) and now issue me a Form 8606 (not my wife, since hers was deductible)
With this Form 8606 of my amended 2022 taxes, I can now declare a nondeductible contribution of $6000 for myself. This reduces the taxable amount by $6000 ($6000 from my wife remaining)
My wife's IRA base is still $0 (given that she never had nondeductible contributions).
In 2023, we are above the threshold, so my wife's contribution for this year is non-deductible.
We are still taxed the $6000 contribution to my wife's IRA account (backdoor roth) we made in 2023 for 2022.
Can someone tell me if I'm not considering something? Is this correct? As far as I understand, we now used "pre-tax" money in 2022 (given that it was deductible), but we're getting taxed in 2023 for it again?
