Backdoor Roth IRA conversion for 2018 & 2019 converted in 2019

[brijeshkhanna]

 In Jan 2019 I made two non deductible contributions to Traditional IRA; one for 2018 =$6500 and 2nd for $2019 = $7000 (I am 60 years + ). The next day  I then transferred $13,500 to Roth IRA for backdoor conversion.

On my 2018 return, In TurboTax I reported $6,500 as non-deductible Traditional IRA contribution. I did not deal with Roth Conversion on my 2018 return as I did not have a 1099-R.

Now I am filing 2019 return. I have a 1099R showing distribution of $13,500 (the 1099-R has box 2b checked (Taxable amount not determined); Distribution code is 7 and IRA/SEP/Simple box is checked.

I am unable to figure out how to enter this in TurboTax - no matter what I do, I get excess tax liability. Can some one guide me how to enter 2018 as well 2019 Roth conversion in my 2019 return?

Thank you

[macuser_22 · Accepted solution]

This so-called “back-door Roth” method ONLY works if you have NO OTHER Traditional IRA accounts.  If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself.  Only if you started with NO Traditional, SEP & SIMPLE IRA and ended up with a zero amount in ALL Traditional, SEP & SIMPLE IRA accounts will this Roth conversion not be taxable.

First you must enter your Traditional IRA contributions (if there were 2019 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 2019.     (Usually zero unless you also made a 2018 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2019 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 2019, 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

[vikasahuja]

What if the Balance as per Form 5498 is not zero? In my case, I converted $633 prior to 12/31/2019 and rest of $5367 was converted on Jan 1, 2020. The total amount contributed was $6000 for 2019 as non deductible IRA from post tax dollars. How do I make Turbo Tax keep my $633 contribution to IRA (and then conversion) as non taxable? If I make my balance at the end of the year to $0 when asked by Turbo Tax, it becomes non taxable otherwise, it becomes taxable. 

[macuser_22]

---

@vikasahuja wrote:

What if the Balance as per Form 5498 is not zero? In my case, I converted $633 prior to 12/31/2019 and rest of $5367 was converted on Jan 1, 2020. The total amount contributed was $6000 for 2019 as non deductible IRA from post tax dollars. How do I make Turbo Tax keep my $633 contribution to IRA (and then conversion) as non taxable? If I make my balance at the end of the year to $0 when asked by Turbo Tax, it becomes non taxable otherwise, it becomes taxable. 

---

The 5498 is for information only.  You are asking about two different tax years.

For the 2019 conversion, you should have a 2019 1099-R reporting that.  If you had non-deductible "basis" prior to 2020 then that can be applied to reduce the 2019 tax.  The year end value is for ALL Traditional IRA accounts that you had then and you get that from the 2019 year end statements from the financial institutions holding the IRA accounts.

Any amount converted in 2020 will be reported next year on a 2020 1099-R and you report it the same way, using the 2020 year end value.  Any new non-deductible contribution made *in* 2020 (whether it was for 2020 or 2019) would be applied to the 2020 conversion.

[vikasahuja]

Turbo tax asks for the year end value of non deductible IRA account. if balance is for information only, then changing the balance in Turbo Tax input changes my tax liability, why? This is the part i am confused about.

[macuser_22]

---

@vikasahuja wrote:

Turbo tax asks for the year end value of non deductible IRA account. if balance is for information only, then changing the balance in Turbo Tax input changes my tax liability, why? This is the part i am confused about.

---

I never said the balance is for information only.  I said the 5498 form is for information only.   You DO NOT get the year end balance from that form (the 5498 is issue in May not year end) - you get the year end balance from the 2019 year end statements from the financial institution holding the IRA.

Yes the 2019 year end account value is absolutely required to correctly calculate the taxable amount, otherwise, as you found out, all the basis would be applied if the year end value was zero and that is NOT correct.

[vikasahuja]

I got Form 5498 at end of the year along with 1099 R.  So, what i have learnt so far, even though IRA service providers like Fidelity allow you to contribute to non-deductible IRA for past year uptil April 15, you will have tax incidence. To get tax fee conversion to Roth, one must have $0 balance at the end of the year for IRA. Is that true?

What is a basis? Having basis from past year reduces one's tax in following year? I couldn't find non-confusing definition of it. 

[macuser_22]

---

@vikasahuja wrote:

I got Form 5498 at end of the year along with 1099 R.  So, what i have learnt so far, even though IRA service providers like Fidelity allow you to contribute to non-deductible IRA for past year uptil April 15, you will have tax incidence. To get tax fee conversion to Roth, one must have $0 balance at the end of the year for IRA. Is that true?

What is a basis? Having basis from past year reduces one's tax in following year? I couldn't find non-confusing definition of it. 

---

If the 5498 was a 2020 5498 that reports the 2019 year end balance than that would be unusual since 5498 forms are not  normally issued until may.

Basis is the after-tax nondeductible contribution.

Yes. to make a conversion tax free, the 2019 year end value must be zero. but in yiu cased is is not for two reasons.

1) You did not make the conversions until Jan 2020 so that can only be reported next year on your 2020 tax return.

2) Yes, you have until April 15, 2020 to make a 2019 contribution, but that does not bean that then non-deductible basis can be applied retroactively - it cannot.   It is specifically excluded for any 2019 conversions on the 8606 form line 4.   It will be applies to 2020 conversions since it was contributed *in* 2020 even if it was *for* 2019.

[vikasahuja]

Thanks for explaining the process and forms. I received 2019 5498 form in Jan 2020 where its title says 2019 form 5498 IRA contributions information and has fair market value of account as of 12-31-2019.

[bartzumbari]

I did this backdoor conversion: contributed $7000 to IRA, then immediately converted to a roth (I started and ended the year with $0 in my IRA).  Turbotax is still saying I have $7000 in taxable income.  Turbotax even gives me the little blurb "good news, you don't owe extra tax on this money" and yet it still puts $7000 in line 4b of the 1040.

I've done this in previous years exactly the same way and it worked.  This year is different for some reason.

Could this be a bug?

[macuser_22]

---

@bartzumbari wrote:

I did this backdoor conversion: contributed $7000 to IRA, then immediately converted to a roth (I started and ended the year with $0 in my IRA).  Turbotax is still saying I have $7000 in taxable income.  Turbotax even gives me the little blurb "good news, you don't owe extra tax on this money" and yet it still puts $7000 in line 4b of the 1040.

I've done this in previous years exactly the same way and it worked.  This year is different for some reason.

Could this be a bug?

---

There is no bug.

You probably did not enter the $7,000 contribution into the IRA contributions sections and mark it non-deductible.

If you did then it would be on the 8606 form line 1 (and not also on line 4).

[bartzumbari]

Yes, I was tracing through the forms and just noticed 8606-T was missing the contribution entry (comparing with 2018 return).

This year, Turbotax asked me if I have deductible expenses greater than a certain amount (the amount needed to get beyond the standard deduction.)  I answered no to this question and it skipped the rest of the deduction section (where the IRA contribution section is at) causing me to skip the IRA contribution section.  It's working now.

Thanks!

[correctax]

I did Backdoor Roth IRA conversion for 2018 & 2019 converted in 2019 May which is after 2018 tax report date. How will it be different from what you've told? Do I have excess contribution and thus need to pay penalties for my rollover?

[macuser_22]

---

@correctax wrote:

I did Backdoor Roth IRA conversion for 2018 & 2019 converted in 2019 May which is after 2018 tax report date. How will it be different from what you've told? Do I have excess contribution and thus need to pay penalties for my rollover?

---

No different.  The 2019 contribution should go on the new 8606 form line 1 and the 2018 contribution from the 2018 8606 form box 14 on the new 8606 line 2 to the total will be used to offset the taxable amount as described in the procedure.

[correctax]

Thanks. Do I need to tax amend 8606 for my 2018 tax year return then?