@dmertz
Thank you. It worked out.
I have one more scenario on my spouse's account side. Same backdoor but a little more complicated since it includes 2018 tax year as well.
Here is the timeline of events:
- April 2019, before tax deadline: contributed $5500 to Roth IRA for tax year 2018
- April 2019, after tax deadline: contributed $6000 to Roth IRA for tax year 2019
- Jan 2020: contributed $6000 to Roth IRA for tax year 2020
- Feb 2020: just found out about income limits and recharacterized $5633 and $6078, the two amounts from 2019 tax year and 2020 tax year (net of capital gain/loss). Couldn't do anything about 2018 contribution (took the $5500 back to my bank, amended the previous return, paid tax on gain/loss )
- March 2020: Converted $10709 (the amount above minus loss) back to roth.
The forms I received:
- 1099-R from Traditional: $10709, code 2
- 1099- R from Roth: $5500, code J
- 1099- R from Roth: $5633, code N
- 1099- R from Roth: $6078, code R
What I filed last year:
- 8606 - with $6000 non deductible amounts.
- 5329 - line 18: $4890, line 25: $293
Amended return from 2018:
How should I enter all this on my 2020 return? Thank you.
The excess $5,500 contribution for 2018 is subject to 6% excess accumulation penalties on your 2018 and 2019 tax returns, so if those tax returns did not each include Form 5329 Part IV with the $330 penalty for each year, you must file those and pay the penalties.
Do not enter the code R Form 1099-R anywhere. Just make sure that your 2019 tax return shows the resulting $6,000 traditional IRA contribution either as deductible on Schedule 1 line 19 or on Form 8606 line 1. Amend 2019 if necessary to correct this.
Enter the code 2 Form 1099-R and indicate that this amount was converted to Roth.
Enter the code J Form 1099-R and indicate that you cashed it out.
The code N Form 1099-R reports a rrecharacterization in 2020 of the $6,000contribution made in January for 2020. Apparently the Roth IRA investments had dropped in value, so recharacterizing $6,000 resulted in a transfer to the traditional IRA of $5,633 In addition to entering the code N Form 1099-R into 2020 TurboTax (which will actually be ignored by TurboTax) you must enter the original $6,000 Roth IRA contribution under Deductions & Credits and indicate that you changed the $6,000 to be a traditional IRA contribution instead. TurboTax will then prompt you to enter an explanation statement regarding the details of this recharacterization.
Make sure that after entering all Forms 1099-R (except the code R Form 1099-R) into 2020 TurboTax that you click the Continue button on the Your 1099-R Entries page TurboTax shows your Total Basis [in nondeductible contributions] as of December 2019 as $6,000 and your Roth IRA Contributions prior to 2020 as $5,500. Also make sure that you enter as your excess contributions the $5,500 excess carried into 2020 from 2018.
TurboTax will prepare 2020 Form 5329 Part IV to show that your code J distribution has eliminated the excess contribution that had been made for 2018. TurboTax will also prepare Form 8606 Parts I and II showing that the code 2 Roth conversion is nontaxable and Part III to show that the code J distribution is nontaxable. Form 1040 line 4a will show $21,842 of reportable transactions and line 4b will have $0 showing that none of this is taxable.
With $12,000 of basis in nondeductible traditional IRA contributions from the 2019 and 2020 contributions, the $10,709 Roth conversion will be nontaxable (assuming that the December 31, 2020 balance in traditional IRAs was zero), calculated on Form 8606 Parts I and II.
