I'm confused about 1099-R and Roth conversions. In 2015 I made a 2014 and 2015 after tax contribution to a new traditional IRA and proceeded to convert the total amount to a new Roth IRA. My 1099-R lists a distribution for the total amount (2014 and 2015 contributions). It seems that since these were after tax contributions that were immediately converted to a Roth, I should not owe any tax. However when I enter the 1099-R, my refund amount goes way down. Can someone clarify please? Thank you.
On my 1099R, there is box 2a, which is the taxable portion of my rollover, shouldn't I have to pay taxes on this amount? However, TT records the total amount of the rollover has taxable in withdrawals sections, shouldn't it just recorded the taxable? When I enter the contribution to the T-Roth IRA, should it be box 5 (employee contribution) and TT will adjust for the interest earned from my 401K after tax?
Doing a "backdoor Roth" in TurboTax is a 2-step process.
First, go to Federal Taxes > Deductions & Credits > I'll Choose What to Work On > Retirement and Investments > Traditional and Roth IRA Contributions. Enter the contribution to the Traditional IRA that you made. Depending on your income and if you have a retirement plan at work, TurboTax will either tell you that your contribution is not deductible or it will ask you "Do you want to make your IRA contributions nondeductible?"
Once TurboTax knows that your Trad IRA contributions are nondeductible (that is, you have a basis in your Trad IRA), then enter your 1099-R at Federal Taxes > Wages & Income > I'll Choose What to Work On > Retirement Plans and Social Security > IRA, 401(k), Pension Plan Withdrawals (1099-R). For a Roth conversion, the 1099-R usually has a Distribution Code 2 in Box 7. That means it is an early distribution but an exception applies so there is no penalty.
To check that the right results show, look at your 1040 form. There should be no entry on Line 32 for IRA deduction. The Box 1 amount from your 1099-R should appear on Line 15a of your 1040, but Line 15b should be zero.
(If you are doing this in the current tax year, you can not adjust and it's reportable on a lag (A roth conversion done after year end prior to 4/15) you may need to file a form 8606 for the prior TAX YEAR basis, if you are doing the conversion in the current year for prior year). Send in the completed 8606 showing the NON-Deductible amounts so it will catch up to your current Tax Return. (mail in)
Then prepare the current return, enter the 1099-R, within the questions to be answered, Do you kept track of Non-Deductible Contributions to Traditional IRA, Answer YES .. Now Form 8606 will show the NON-Deductible Contributions you made, to be offset by the amount on the 1099-R. Any earnings in the IRA will be taxable. Example case, you contributed $2000 and by March earned $15 dollars. The 1099R was for $2,015 and the non-deductible contribution was $2000 making the $15 taxable in the current year.
I followed the above, but TT still shows part of my conversion as taxable on line 15b, How do I fix that? It won't let me manually change it
@volvo05 do you have other traditional IRA's? If you do the IRS treats them as one so there isn't a 100% converstion to Roth and some gains may end up taxable. Say you have $90 in other traditional IRA's with cost of $80 and just opened one for $10 and were making the $10 one a Roth. The IRS says you actually have $100 with cost of $90 and when you convert the $10 to a Roth it will make $1 taxable....
Otherwise you may have missed filling in a box from your 1099, make sure it's checked exactly as received.
On my 1099R, there is box 2a, which is the taxable portion of my rollover, shouldn't I have to pay taxes on this amount? However, TT records the total amount of the rollover has taxable in withdrawals sections, shouldn't it just recorded the taxable? When I enter the contribution to the T-Roth IRA, should it be box 5 (employee contribution) and TT will adjust for the interest earned from my 401K after tax?
did you ever get a good answer for this? Having same problem this year. Made contributions and conversions for two tax years in 2017 (i.e., for 2016 and 2017). 1099-R amount covers both conversions, but turbo tax questions only get at tax basis as of 12/31/16 (0), 12/31/17 (0), and 2017 tax year contributions made in 2017 or through April 2018. There is apparently no place to indicate that 2016 nondeductible contributions were also made in 2017 that would create basis for the 1099-R amount to be fully non-taxable, and putting a higher amount (covering both tax years) for 2017 contributions leads to Turbo tax incorrectly identifying them as excess contributions, subject to a penalty tax.
The 2016 1099-R must be reported in the 2016 return, you have to amend 2016 tax filings for that. Basically, you know you will get a 1099 for the year you are working on, so you input it in the year you are filing so you won't have to amend the return. Another note, this is a 2 year old post, so you should start a new post.
Thanks maglib. The question goes to a 2017 1099-R that I just received now. The conversion event (covering two years worth of contributions) occurred in March 2017, which would be fully reflected in my 2017 return as it was a 2017 event.
However, looking back, it does look like my 2016 Form 8606 reports basis for last tax year (I had been assuming I had reported 0). So that solves it for me, at least.
I had the same problem and solved it this way:
I made a Traditional IRA Contribution in the year 2016 (January) for the TAX YEAR 2015. Then by MARCH 2016 I decided to have it changed to a ROTH IRA. Thinking now I had a NON-DEDUCTIBLE ROTH IRA CONTRIBUTION. Evidently this is not the case, you can make a contribution in the NEXT YEAR and say it belongs to the prior tax year (if done before 4/15), BUT you cannot+- do that with mistakes or in and out transactions. So you need to file a form 8606 for TAX YEAR 2015. Send in the completed 8606 showing the NON-Deductible amounts so it will catch up to your 2015 Tax Return. (mail in)
Then prepare the 2016 return, enter the 1099-R, within the questions to be answered, Do you kept track of Non-Deductible Contributions to Traditional IRA, Answer YES .. Now Form 8606 will show the NON-Deductible Contributions you made, to be offset by the amount on the 1099-R. Any earnings in the IRA will be taxable. In my case I contributed $2000 and by March earned $15 dollars. The 1099R was for $2,015 and my non-deductible contribution was $2000 making the $15 taxable in 2016.
Good Luck
I followed step-by-step. but still have problems:
In 2021 I made a 2020 and 2021 after tax contribution to a new traditional IRA and proceeded to convert the total amount to a new Roth IRA. My 1099-R lists a distribution for the total amount of $12,000 and 12,000 in box 1 and box 2a (2020 and 2021 contributions). Line 4b in 1040 shows 0 now, which is correct. however, Turbo tax indicates I owe 6% penalty of exccess contribution to IRA ($6000 each year) after I followed the "back-door Roth IRA" 2-step process in Turbo Tax.
what shall I do?
The problem is in the section where you indicated that you made non-deductible contributions to the Traditional IRA. The contribution that was made for 2020 should have been reported on your 2020 tax return. This would have generated a Form 8606 that would show the basis in the Traditional IRA.
For your 2021 return, you should indicate that you have made a non-deductible contribution to your Traditional IRA for 2021 ($6000). Then, as you go through the questions in that section, indicate that you have made previous non-deductible contributions. This is where you can include the $6000 contributed for 2020.
Hi, I did my 2020 and 2021 nondeductible traditional IRA contribution and converted to Roth IRA immediately in 2021. So, for my 2021 1099-R, there are $14000 (7000 for each year). Don't know how to report this amount without getting penalty and taxed again.
I wonder if you have found out the way to do it right? If so, would you be able to share with me?
Many thanks, Paul
To avoid paying taxes again on the nondeductible IRA contributions:
Follow the two-step process to properly enter your backdoor Roth conversion:
Step 1: Enter the Non-deductible contribution to a Traditional IRA:
Step 2: Enter the Conversion from a Traditional IRA to a Roth IRA
Inside TurboTax, search for 1099-r and select the Jump to link in the search results
To check the results of your backdoor Roth IRA conversion, see your Form 1040:
@pjz77
Hi @FangxiaL
This is extremely helpful and clear. Thank you! I followed the steps and see my backdoor IRA taxable amount being $0.
I am experiencing the same exact situation but with tax year 2021 and 2022 (instead of 2020 and 2021). Before doing #9 in STEP 1, do I need to file Form 8606 for 2021 in order for me to establish the basis amount listed in #9 ($7000)? And should I wait for IRS to receive the Form before I file for my tax return this year?
Thank you!
Yes, if made a nondeductible traditional contribution for 2021 and you haven't included Form 8606 with your 2021 return then you will need to file the 2021 Form 8606. Please see How do I amend my federal tax return for a prior year?
No, you don't have to wait to file your 2022 tax return.
@Anonymous
@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.
Hi!
One more question- do we need to also send in $100 penalty ($50 per person) along with the 8606 that we did not file for 2021 tax year? It shows that if you're required to file Form 8606 to report a nondeductible contribution to a traditional IRA for 2021, but don't do so, you must pay a $50 penalty.
Our situation is the similar as rest of this thread, only difference is
In Dec 2021, my spouse and I each mistakenly directly deposited $6000 into Roth IRA.
In Jan 2022, we realized our MAGI was too high for direct IRA contribution so we recharacterized the $12,000 from Roth IRA to Traditional IRA.
In Feb 2022, we did a conversion... rest is same as the thread..
In 2021 tax year, we did not file Form 8608. Now do we need to pay the $100 penalty.
Thank you~
@Anonymous
You can file delinquent Forms 8606 without amending your tax returns. As you are aware, there can be a penalty of $50 for not filing Form 8606 on a timely basis, but the penalty can be waived if you can show reasonable cause for not filing.
You may also be able to make a recharacterization. If necessary, complete a new Form 8606 showing the revised information and file it with Form 1040-X. This should have been processed if you did the amended taxes with TT.
If you are required to file Form 8606 to report a nondeductible contribution to a traditional IRA for 2022, but don’t do so, you must pay a $50 penalty, unless you can show reasonable cause.
https://www.irs.gov/payments/penalty-relief-for-reasonable-cause
Read link which I pasted below in full. This is one where you just need to be careful what you claim as your reason.... It was not like it caused additional taxes.
Reasonable cause is determined on a case by case basis considering all the facts and circumstances of your situation.
Reasons that qualify for relief due to reasonable cause depend on the type of penalty you owe and the laws in the Internal Revenue Code (IRC) for each penalty.
Reasonable cause doesn't apply to certain penalties such as the estimated tax penalty.
For businesses, the reasons apply to the person with authority to submit the return, deposit, or tax.
You may qualify for penalty relief if you demonstrate that you exercised ordinary care and prudence and were nevertheless unable to file your return or pay your taxes on time.
Examples of valid reasons for failing to file or pay on time may include:
For more information see Policy Statement 3-2.
The following factors don't generally qualify as valid reasons for failure to file or pay a tax on time:
If you received an accuracy-related penalty, you may qualify for penalty relief if you acted with reasonable cause and good faith. To determine whether you qualify, we consider factors including:
If you relied on a tax advisor, we may consider:
For more information see Treasury Regulation 1.6664-4.
If you can show reasonable cause for failing to file accurate, timely information returns or payee statements, we may consider penalty relief if you prove:
For more information see Treasury Regulation 301.6724-1.
If you can't pay the full amount of your taxes or penalty on time, pay what you can now and apply for a payment plan. You may reduce future penalties when you set up a payment plan.
We may reduce or remove some penalties over the phone. Call the toll-free number at the top right corner of your notice to request penalty relief for reasonable cause and have supporting documentation.
Have this information when you call:
During the call, if you apply for reasonable cause but we "determined" you qualify for First Time Abate, we'll apply the latter. If you don't qualify for either or we can't approve your relief over the phone, you can request relief in writing with Form 843, Claim for Refund and Request for Abatement.
To reduce or remove an estimated tax penalty, see:
Explain the facts and circumstances around your late return, deposit, or payment, including:
You should also include supporting documentation such as:
If you received a notice or letter saying we denied your request for penalty relief, see Penalty Appeal Eligibility for next steps.
We charge interest on penalties. Interest increases the amount you owe until you pay your balance in full.
We'll automatically reduce or remove the related interest if we reduce or remove any of your penalties. Find more information about the interest we charge on penalties at Interest.