Backdoor Roth IRA contribution

[macuser_22]

---

@Wyldaisy wrote:

Hi, 

Regarding the question:  "Were there any nondeductible contributions to the IRA":

The 2020 version of Turbo tax says: "Any non-deductible Contributions to your IRA? Let is know if you made and kept track of any non-deductible contributions to your traditional IRA from 2019 or prior years."

I've never had an IRA before and due to income limitations, I contributed money to a traditional IRA in 2021 for tax year 2020 that I immediately converted to a Roth.   It would seem that I should answer NO to the question above, is that correct?  If I answer that question NO, the next screen immediately says I do not qualify and no tax break, which I understand and agree with.  However, I just want to make sure I answer that question correctly to make sure all of the correct forms populate for 2020.

If you answer NO to that question, you do not get the additional screens about 'basis', etc.   But it is just not clear to me if that question wants to know if there any nondeductible contributions to the IRA in 2020 (my case - YES), or only 2019 and prior (in my case - NO).

Thanks

---

What exactally are you entering?     If converted in 2021 you will not receive the 2021 1099-R until January 2022 and it will be reported next year on your 2021 tax return.

[dmertz]

Wyldaisy, it seems that you have entered everything correctly.  TurboTax separately asks for nondeductible traditional IRA contributions made for years prior to 2020 (none in your case) and your nondeductible traditional IRA contribution that you made for 2020 (which you have entered and ends up appearing on line 14 of Form 8606 to carrying forward to line 2 of your 2021 Form 8606 where the taxable amount of your Roth conversion will be determined).

[Wyldaisy]

In February 2021, I contributed to a traditional IRA and then immediately funded a Roth IRA to do a backdoor conversion for calendar year 2020.  I completed two on the same day: one for calendar year 2020 and one for calendar year 2021.  So I contributed to 2020 tax year and 2021 tax year in 2021, but converted both years in 2021.  The calendar year 2021 contribution and conversion I will handle in my 2021 return, but would like to get additional clarity on how to handle the 2020 transaction contributed and converted in 2021.

It is my understanding that there is nothing I need to do for the conversion related to the 2020 contribution that occurred in calendar 2021.  I did not receive a 1099-R so there is nothing to report for income (though there should not be any since i immediately converted), and will handle this part with my 2021 return.  But I am trying to figure out all of the boxes in 2020 to select for the contribution for 2020:

1. Select Traditional IRA
2. Confirm on next screen I contributed to a traditional IRA - YES
3. Is this a repayment - NO
4. Enter total 2020 contributions.  Enter same amount in portion funded between Jan. '21 and Apr. '21 (two fields to populate)
5. Did you change your mind - NO
6. Any excess IRA contributions before 2020 - NO (these are my first two IRA transactions)
7. "Any non-deductible Contributions to your IRA? Let us know if you made and kept track of any non-deductible contributions to your traditional IRA from 2019 or prior years."

Step 7 is what is confusing me.  Is the question about my 2020 IRA contribution?  If so, is the answer is yes since I am making a backdoor that is non-deductible.  Or - is the question about non-deductible contributions in 2019 and prior?  If so, is the answer is no since my first IRA transactions are in 2020.

Depending on how this question is answered, the screens/questions that follow are different, so I wan to be sure I select the right answer.  

I am using TT Home and Business for tax year 2020.  Thank you for your help.

[DaveF1006]

 Yes, you would answer no to the question about making a non-deductible contribution for 2019. It asks this question to order to track non-decutible contributions and report on form 8606.

[dawnrb]

I followed these steps for 2020 taxes and it still shows the amount of the contribution as taxable as well as showing a penalty for contributing to the IRA!  It seems Intuit does not have a system to record the backdoor Roth IRAs properly.  What are we supposed to do now?

[dmertz]

TurboTax handles these transactions properly.

The traditional IRA contribution and the Roth conversion are two separate transactions.  Each must be reported separately.  The nondeductible traditional IRA contribution must be reported on the Form 8606 for the year for which the traditional IRA contribution was made.  The Roth conversion must be reported on the Form 8606 for the year in which the the Roth conversion was done.

[dawnrb]

That is correct and I have entered them in the proper years (nondeductible contribution to traditional IRA and conversion to Roth IRA were both in 2020) and it still fills out the 1040 incorrectly (it shows the contribution as taxable) unless I tell it the basis was the same amount as the contribution (which if I do, it fills out the 8606 incorrectly)

[macuser_22]

---

@dawnrb wrote:

That is correct and I have entered them in the proper years (nondeductible contribution to traditional IRA and conversion to Roth IRA were both in 2020) and it still fills out the 1040 incorrectly (it shows the contribution as taxable) unless I tell it the basis was the same amount as the contribution (which if I do, it fills out the 8606 incorrectly)

---

That is correct if it was a 2019 (or earlier) contribution.   If a 2020 contribution it must be entered in the IRA contribution interview and marked as non-deductible.  Be sure you do not say it was for contributed between Jan 1,2020 and April 15,2020 as a 2019 contribution unless it WAS a 2019 contribution  (if it was then that is reported on an 2019 tax return).

The TurboTax will apply it automatically.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR  Use the "Tools" menu  (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

[flatface]

My MAGI exceeds the contribution limit of Roth. This is the 1st time I use backdoor Roth. I did the 2020 Tradition IRA contribution on 3/3/2021 and converted all fund to  Roth on 3/4/2021. The broker said I will not get a 1099-R for 2020 since I did it on 2021. I followed your steps through Part I but then stall at Part II which requires to enter data in 1099-R. What should I do since I do not have a 1099-R? Thanks.

[dmertz]

flatface, you do nothing more.  The Roth conversion is reportable on your 2021 tax return when you receive the From 1099-R near the end of January 2022, not on your 2020 tax return.  In other wards, Part II is done on your 2021 tax return.

Line 14 of your 2020 Form 8606 carries forward to line 2 of your 2021 Form 8606 to be used in determining that taxable amount of your Roth conversion performed in 2021.

[flatface]

Dmertz,

Thanks a lot for the instruction. Now 8606 does generate correctly.

[Wyldaisy]

Hi,

I am following up on the question below (answered last year).  Now that it is one year later,  I have to address the 2020 Roth conversion that occurred in February 2021 and the 2021 traditional IRA contribution that was immediately converted to a Roth in February 2021.  Please provide assistance with the selections that must be made in order to report this correctly.  If it is helpful the 2020 and 2021 contributions are the only ones I have ever made, there are no prior years to address.

Originally submitted March 2021

In February 2021, I contributed to a traditional IRA and then immediately funded a Roth IRA to do a backdoor conversion for calendar year 2020.  I completed two on the same day: one for calendar year 2020 and one for calendar year 2021.  So I contributed to 2020 tax year and 2021 tax year in 2021, but converted both years in 2021.  The calendar year 2021 contribution and conversion I will handle in my 2021 return, but would like to get additional clarity on how to handle the 2020 transaction contributed and converted in 2021.

It is my understanding that there is nothing I need to do for the conversion related to the 2020 contribution that occurred in calendar 2021.  I did not receive a 1099-R so there is nothing to report for income (though there should not be any since i immediately converted), and will handle this part with my 2021 return.  But I am trying to figure out all of the boxes in 2020 to select for the contribution for 2020:

1. Select Traditional IRA
2. Confirm on next screen I contributed to a traditional IRA - YES
3. Is this a repayment - NO
4. Enter total 2020 contributions.  Enter same amount in portion funded between Jan. '21 and Apr. '21 (two fields to populate)
5. Did you change your mind - NO
6. Any excess IRA contributions before 2020 - NO (these are my first two IRA transactions)
7. "Any non-deductible Contributions to your IRA? Let us know if you made and kept track of any non-deductible contributions to your traditional IRA from 2019 or prior years." - NO

These steps were completed in the 2020 return.

[MarilynG]

Continue past the last question you posted and indicate the amount you want to make 'non-deductible' (the amount you converted in 2021). 

This will generate Form 8606 for your 2020 return.  Do the same for your 2021 IRA amount you are converting.  Indicate the contribution, then make it 'non-deductible.'

The conversion is a two-step process.  Click this link for details on How to Enter a Back-Door Roth Conversion. 

@Wyldaisy

[Wyldaisy]

Thank you, the link helps.  I need to revisit the 1099-R sections as well as the part that generated the 8606.  But for clarification, since these are back door Roth IRAs that are not deductible (i.e. income limitations, etc.), for my question below from the 2020 Turbo Tax season (how I answered this question last year:(

1. "Any non-deductible Contributions to your IRA? Let us know if you made and kept track of any non-deductible contributions to your traditional IRA from 2019 or prior years." - Answered NO  (Prior to 2020, I had no IRAs)

Will the question on the 2021 turbo tax form say "Any non-deductible Contributions to your IRA? Let us know if you made and kept track of any non-deductible contributions to your traditional IRA from 2020 or prior years."  

And if so, should I answer YES in this case?  Am I tracking my 2020 non-deductible contribution to my IRA (traditional that was immediately converted to a Roth).  And if the answer is YES, would it be the $7,000 that was contributed and converted in March 2021 for tax year 2020?

I also did another contribution and conversion (same day) for calendar 2021 in March 2021.  Still processing how to enter this and may have follow questions for this?

[macuser_22]

---

@Wyldaisy wrote:

Thank you, the link helps.  I need to revisit the 1099-R sections as well as the part that generated the 8606.  But for clarification, since these are back door Roth IRAs that are not deductible (i.e. income limitations, etc.), for my question below from the 2020 Turbo Tax season (how I answered this question last year:(

1. "Any non-deductible Contributions to your IRA? Let us know if you made and kept track of any non-deductible contributions to your traditional IRA from 2019 or prior years." - Answered NO  (Prior to 2020, I had no IRAs)

Will the question on the 2021 turbo tax form say "Any non-deductible Contributions to your IRA? Let us know if you made and kept track of any non-deductible contributions to your traditional IRA from 2020 or prior years."  

And if so, should I answer YES in this case?  Am I tracking my 2020 non-deductible contribution to my IRA (traditional that was immediately converted to a Roth).  And if the answer is YES, would it be the $7,000 that was contributed and converted in March 2021 for tax year 2020?

I also did another contribution and conversion (same day) for calendar 2021 in March 2021.  Still processing how to enter this and may have follow questions for this?

---

You should have entered the 2020 contribution in the IRA contribution interview wand mqd shre that it was non-deductible so that you would have a 2020 8606 form with the non deductible amount on line 14 that you will need when enterint the 2021 1099-R for the "Backdoor Roth".

The "Backdoor Roth" does not exist in tax law. It is a procedure used by some to take advantage of a quirk in tax law that allows making a non-deductible contribution to a Traditional IRA when one cannot contribute to a Roth IRA, and the immediately converting the Traditional IRA to a Roth IRA, thereby getting the money into the Roth via "backdoor" tax free. [Congress has been talking about changing the tax law to prohibit this but has not yet done so.]

That "procedure" can only work of all these requirements are met:
1) No Traditional IRA account whatsoever can exist (that includes any SEP or SIMPLE IRA accounts) at the start. If existing IRA's contain any before-tax money or earnings then it will be partly taxable.
2) The Tradition IRA contributions must be reported on a 8606 form as non-deductible.
3) The conversion to a ROTH must be shortly after the contribution to avoid taxable gains.
4) The entire Traditional IRA value must be zero that the end of the year of conversion.

Otherwise the conversion will be partly taxable.

First you must enter your Traditional IRA contributions (if there were 2021 contributions).

IRA contribution
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),,
Retirement & Investments,
Traditional & Roth IRA contribution.

Be SURE to answer the follow up that the are choosing to make this contribution NON-DEDUCTIBLE - if that screen comes up. (DO NOT say that you moved (recharacterized) the money to a Roth) – this is a conversion, not a recharactorazition.

Then enter the 1099-R that shows the distribution.

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),,
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2021.     (Usually zero unless you also made a 2020 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2021 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2021, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.

Also see this TurboTax FAQ:
https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion