@Anonymous wrote:
Just confirming, if I do the backdoor conversion for 2020 and I have a current balance in the traditional IRA of $126,037. and spouse"s $53,429 . If we convert the $7000 and $6000, we will end up paying double tax on that $13000?? It was converted the same day it was deposited. I just did this 2 months ago, can I remove it from the Roth without penalty before the 2020 filing deadline? I don't want to be taxed twice for the same money.
Plus, due to Covide-19, our AGI didn't go over the maximum for Roth IRA contributions this year. How can I fix this?
Filed joint return, one is over 59 1/2 and one party is under. HELP!
Thanks
You will not be taxed twice. And once converted the conversion cannot be undone. You have until the May 17 due date to remove a 2020 contribution which will make the entire conversion taxable on your 2021 tax return since the conversion was done in 2021.
But because you will have a year end balance of about $126,000 in your IRA the $13,000 must be prorated between the current conversion and the remaining IRA value. Assuming this was all in the same IRA - if this was done for both spouses IRA's then each spouses IRA must be calculated separately using the amounts for that spouse.
Using your figures, about $1,216 will be not taxable and $11,784 will be taxable, leaving $11,784 of "basis" to apply to future distributions.
You can NEVER withdraw ONLY the nondeductible part - it must be prorated over the entire value of ALL Traditional IRA accounts which include SEP and SIMPLE IRA's. (For tax purposes you only have ONE Traditional IRA which can be split between as many different accounts as you want, but for tax purposes they are all added together).
For example using rough figures: if you had $60K of nondeductible contributions in an IRA with a total value of $600K (10:1 ratio), then when you take a $60K distribution from any IRA account $6,000 would be nontaxable and $54,000 would be taxable (same 10:1 ratio) , with the remaining $54K of basis staying in the IRA for future distributions. As long as there is any money in the IRA, there will be some basis.
TurboTax will ask for your non-deductible "basis" and then the *Total Value* of *all* Traditional IRA, SEP and SIMPLE accounts as of Dec 31, of the tax year. That is so the prorating of the basis can be properly proportioned between the current years distribution and the remaining IRA value. That is done on the 8606 form.
The non-taxable amount can be calculated.
non-taxable = (basis * distribution) / (year end IRA value + distribution)
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
