Backdoor conversion of nondeductible IRA to Roth

Yes, if you had earnings before the conversion then they will be taxable.

 

If you have a retirement plan at work and are over a certain income limit then your IRA contributions will be automatically nondeductible and you won't get the question that asks if you want to make it nondeductible. Please follow these steps to enter your traditional IRA contribution for 2022:

 

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had nondeductible contributions before this tax year
10. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
11. 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. (If your contribution isn't automatically nondeductible then on the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount).

 

To enter the 1099-R conversion: 

 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
12. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

 

 

 

 

First, did you have any prior balance in a traditional IRA?  

 

Second, did you convert the entire balance of your traditional IRA to a Roth at the same time?

 

If the answers are No, and Yes, then you report what you did in 2 steps.

 

Step 1, a non-deductible contribution to a traditional IRA of $6000.

 

Step 2, a conversion to a Roth IRA of $6017.  Since you have a basis of $6000, only the $17 is taxable.

 

If you had a prior IRA balance, or if you did not convert the entire IRA to a Roth IRA, things get much messier. Let us know. 

No prior balance in traditional IRA.

I converted the entire balance - $6017  ($17 was interest) to Roth at once.

Yes, only the $17 interest will be taxable and show as a taxable amount on line 4b of Form 1040. 

 

Please follow my steps above to enter your $6,000 nondeductible traditional IRA contribution for 2022 and to enter the conversion of $6,017 (reported on your 2022 Form 1099-R).

I am in a similar situation but have a balance from previous year (nondeductible IRA).  How do I handle this?