Backdoor Roth IRA contribution

[Wyldaisy]

I went back to my 2020 return and noted what forms and fields were populated.  Then, after completing the steps described for my 2021 return, I noted what fields and forms populated.  Based on lines 1040 4 (a) and (b) in 2021 return, I think have done it correctly?  Thanks to all for guidance!

Original Transaction:

• March 2021 (all on same day)
• $7,000 contribution made to traditional IRA – tax year 2020
• $7,000 contribution made to traditional IRA – tax year 2021
• $7,000 conversion to Roth IRA – tax year 2020
• $7,000 conversion to Roth IRA – tax year 2021

2020 Tax Return:

• Form 1040
• Line 4 (a)   $0/blank
• Line 4 (b)   $0/blank

• Form 8606
• Line 1     $7,000
• Line 3     $7,000
• Line 14   $7,000

2021 Tax Return:

• Form 1040
• Line 4 (a)    $14,000
• Line 4 (b)    $0

• Form 8606
• Line 1    $7,000
• Line 2    $7,000
• Line 3    $14,000
• Line 5    $14,000
• Line 13    $14,000
• Line 16    $14,000
• Line 17    $14,000
• Line 18    $0

[DanaB27]

Yes, everything looks correct.

@Wyldaisy

[Wyldaisy]

Help!

As usual, I am confused on the back door roth conversion.  In my example below for my forms by year 2020 and 2021,  why did Form 8606 in the 2020 return populate $7,000 on line 14 ...but...in the 2021 tax year, Form 8606 had $0 on line 14?

Is it because the contribution and conversion for 2020 did not occur until 2021, so form 8606 had a value in line 14?  Then, because the 2021 contribution and conversion and the 2020 contribution and conversion occurred in calendar 2021, it left a ZERO balance in 2021, therefore Form 8606 line 14 in calendar 2021 had a $0?

Now I am doing my 2022 back door Roth conversion (both contribution and conversion occurred in calendar year 2022).  Turbo tax wants to populate $0 in 2021 traditional IRA basis (makes sense, since line 14 on 8606 for 2021 was $0).   Is this correct?     

Would this mean that any year where the contribution and conversion occurred in the same calendar year as tax reporting year - the basis turbo tax will over is $0.  For example, when I do my 2023 taxes, form 8606 will pull over $0 basis for traditional IRA for 2022 (because contribution and conversion occurred calendar year 2022).

But let's say for example, I contributed and converted my 2022 contribution in January 2023 (just for example, I did not do this in 2022) - would turbo tax for 2022 pull over a basis of $7,000 for the traditional IRA basis for 2022?

Original Transaction:

• March 2021 (all on same day)
• $7,000 contribution made to traditional IRA – tax year 2020
• $7,000 contribution made to traditional IRA – tax year 2021
• $7,000 conversion to Roth IRA – tax year 2020
• $7,000 conversion to Roth IRA – tax year 2021

2020 Tax Return:

• Form 1040
• Line 4 (a)   $0/blank
• Line 4 (b)   $0/blank

• Form 8606
• Line 1     $7,000
• Line 3     $7,000
• Line 14   $7,000

2021 Tax Return:

• Form 1040
• Line 4 (a)    $14,000
• Line 4 (b)    $0

• Form 8606
• Line 1    $7,000
• Line 2    $7,000
• Line 3    $14,000
• Line 5    $14,000
• Line 13    $14,000
• Line 16    $14,000
• Line 17    $14,000
• Line 18    $0

[dmertz]

"Is it because the contribution and conversion for 2020 did not occur until 2021, so form 8606 had a value in line 14?  Then, because the 2021 contribution and conversion and the 2020 contribution and conversion occurred in calendar 2021, it left a ZERO balance in 2021, therefore Form 8606 line 14 in calendar 2021 had a $0?"

Sort of.  There was no conversion "for" 2020.  There was a conversion in 2021 of the entire balance in traditional IRAs, consuming all of the basis carried into 2021 from 2020 as well as all of the basis from the 2021 contribution, leaving $0 on line 14 of the 2021 Form 8606 to carry forward to 2022.  All of the reporting you've shown from your 2020 and 2021 tax returns is exactly as it should be.

With no money in traditional IRAs at the end of 2021, everything starts fresh in 2022 because there is nothing that carries over from 2021.

When you make a contribution and distribution/conversion in the same year, TurboTax uses Worksheet 1-1 from IRS Pub 590-B to calculate the taxable amount of the distribution or conversion.  This worksheet causes basis from a contribution for 2022 made in 2023 to be applied to 2022 distributions and conversions when it otherwise would not be applied.

[Wyldaisy]

thank you!

I noticed that when I followed all of the steps, turbo tax generated form 5329-T.  I don't see where this form was generated in 2021, did I do something incorrectly?  

The only field that populated in 5329-T was 16. A - Traditional IRA Value Smart Worksheet regarding the value of traditional IRA on December 31, 2022.  Include any contributions made after 12/31/2022 that were for 2022.   Turbo Tax auto-populated this $0 - which is correct.  My 2022 contribution was made in 2022.  Just don't know if I answered a question incorrectly and it triggered this form.  Thank you

[dmertz]

Delete the Form 5329-T.  The entry on line A of the Traditional IRA Value Smart Worksheet is a leftover from when you had likely erroneously reported a $14,000 contribution for 2022.  Now that you have corrected the amount of your 2022 contribution to be $7,000, the entry on line A is vestigial.