@dmertz I'm working on filing my taxes and have myself in a very confusing state with a backdoor roth conversion and recharacterization starting with contributions from 2019. This is similar to the "backdoor roth with rechar and conversion - multiple years" question you answered, except I believe I made an error with my 2019 tax year return and it's even a bit more convoluted. Activity timeline:12/31/19: $3,000 contribution to Roth for 20191/16/20: $3,000 contribution to Roth for 20194/3/20: Realized my 2019 income was in the middle of the Roth contribution phase-out, recharacterized $2,455.88 to Traditional IRA4/7/20: Converted $2,624.33 back into the Roth (backdoor conversion)The forms I got for this year are:1099-R from traditional account, code 02, $2,624.33 distribution1099-R from Roth, code R, $2,455.66 distributionI then filed my 2019 taxes without a form 8606 as I believed all this would be handled on the 2020 tax year form (which I'm doing now). So, by contributing that $3,000 on 12/31/19, does that mean I needed to file a form 8606 for tax year 2019 to represent that $3,000 contribution? I'm confused because at that time it was a Roth contribution, so it's still unclear to me how to properly handle it for the 2019 return. And it seems I could mark the $3,000 from 12/31/19 as money that was not recharacterized on 4/3, hence avoiding the need to declare it on form 8606 for 2019. TurboTax is telling me I likely need to refile for 2019, though, and I'm not sure what the path forward is. Any help is much appreciated! Thank you!

Level 2

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Backdoor Roth with recharacterization and conversion, 2019 potential mistake

Forum|Forum|5 years ago
April 10, 2021
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I'm working on filing my taxes and have myself in a very confusing state with a backdoor roth conversion and recharacterization starting with contributions from 2019. This is similar to the "backdoor roth with rechar and conversion - multiple years" question you answered, except I believe I made an error with my 2019 tax year return and it's even a bit more convoluted.

Activity timeline:

12/31/19: $3,000 contribution to Roth for 2019
1/16/20: $3,000 contribution to Roth for 2019
4/3/20: Realized my 2019 income was in the middle of the Roth contribution phase-out, recharacterized $2,455.88 to Traditional IRA
4/7/20: Converted $2,624.33 back into the Roth (backdoor conversion)

The forms I got for this year are:

1099-R from traditional account, code 02, $2,624.33 distribution
1099-R from Roth, code R, $2,455.66 distribution

I then filed my 2019 taxes without a form 8606 as I believed all this would be handled on the 2020 tax year form (which I'm doing now).

So, by contributing that $3,000 on 12/31/19, does that mean I needed to file a form 8606 for tax year 2019 to represent that $3,000 contribution? I'm confused because at that time it was a Roth contribution, so it's still unclear to me how to properly handle it for the 2019 return. And it seems I could mark the $3,000 from 12/31/19 as money that was not recharacterized on 4/3, hence avoiding the need to declare it on form 8606 for 2019.

TurboTax is telling me I likely need to refile for 2019, though, and I'm not sure what the path forward is. Any help is much appreciated! Thank you!

Best answer by dmertz

1. The nondeductible traditional IRA contribution that goes on 2019 Form 8606 line 1 is just the $2,455.88 (rounded to $2,456) of Roth IRA contribution recharacterized (not the $2,624.33 gain-adjusted amount transferred). This amount will fall through the calculations on the subsequent lines and appear as $2,455.88 on line 14 (assuming that you made to traditional IRA distributions or Roth conversions in 2019).

2. Line 14 of your 2019 Form 8606 carries forward to line 2 of your 2020 Form 8606. In TurboTax, click the Continue button on the page the lists the 1099-Rs that you've entered, indicate that you made nondeductible traditional IRA contributions and enter the $2,456 on the page that asks for you basis in nondeductible traditional IRA contributions. TurboTax will then include this on line 2.

You mentioned no other traditional IRA contributions for 2019, only Roth IRA contributions, so line 1 of the 2019 Form 8606 will show only $2,456 and line 2 of your 2020 Form 8606 will show only $2,456. If you made any nondeductible traditional IRA contributions for 2020, those will appear on line 1 of your 2020 Form 8606, including those nondeductible traditional IRA contributions that resulted from recharacterizations of Roth IRA contributions made for 2020.

3. Without knowing the details of your contributions made for 2020, it's impossible to say how much of you basis in nondeductible traditional IRA contributions applies to your 2020 Roth conversions and how much carries forward to 2021.

D

dmertz

Level 15

The recharacterization of a portion of your Roth IRA contribution caused that portion to be a traditional IRA contribution instead. Entered properly into 2019 TurboTax, TurboTax would have reported this traditional IRA contribution as deductible on 2019 Schedule 1 line 19 if the traditional IRA contribution was deductible or (most likely) on 2019 Form 8606 line 1 if the traditional IRA contribution was nondeductible. The amount on line 1 of 2019 Form 8606 would then likely fall through to line 14 to be carried forward to line 2 of your 2020 Form 8606. The taxable amount of your 2020 Roth conversion would then be determined on the remainder of 2020 Form 8606 Parts I and II.

If the resulting traditional IRA contribution was reported as deductible and you had no other basis in nondeductible traditional IRA contributions, the 2020 Roth conversion is taxable.

A

alowrey11Author

Level 2

Thanks dmertz, that helps a lot. The contribution was nondeductible, so it sounds like a 2019 form 8606 should've been filed (and the conversion is not taxable, to your last paragraph).

So I think the steps forward are:

Re-file 2019 to include a Form 8606 with line 1 filled out. Do I use $3,000 since that was the 2019 contribution, or just the recharacterization amount? And if it is just the recharacterization amount, that should not include and gains/losses, correct?
For 2020, I'll take the carry-forward amount from line 1 on 2019's 8606, plus the contributions I made in 2020 for 2019 tax year (the remaining $3,000), and that should give me the $6,000 amount to Roth that also goes on Form 8606.
And since I did a similar flow for tax year 2020 (contributed throughout 2020 to Roth, then recharacterized and backdoored in 2021 for the 2020 contributions), I'll want to carry forward $6,000 on my 2020 return so it falls through properly to my 2021 tax return.

Does that all seem right? From now on I'll just be doing the straightforward to traditional and immediate conversion to Roth, I can't believe how complicated I've made this.

Thanks again for all your insight!

D

dmertzAnswer

Level 15

1. The nondeductible traditional IRA contribution that goes on 2019 Form 8606 line 1 is just the $2,455.88 (rounded to $2,456) of Roth IRA contribution recharacterized (not the $2,624.33 gain-adjusted amount transferred). This amount will fall through the calculations on the subsequent lines and appear as $2,455.88 on line 14 (assuming that you made to traditional IRA distributions or Roth conversions in 2019).

2. Line 14 of your 2019 Form 8606 carries forward to line 2 of your 2020 Form 8606. In TurboTax, click the Continue button on the page the lists the 1099-Rs that you've entered, indicate that you made nondeductible traditional IRA contributions and enter the $2,456 on the page that asks for you basis in nondeductible traditional IRA contributions. TurboTax will then include this on line 2.

You mentioned no other traditional IRA contributions for 2019, only Roth IRA contributions, so line 1 of the 2019 Form 8606 will show only $2,456 and line 2 of your 2020 Form 8606 will show only $2,456. If you made any nondeductible traditional IRA contributions for 2020, those will appear on line 1 of your 2020 Form 8606, including those nondeductible traditional IRA contributions that resulted from recharacterizations of Roth IRA contributions made for 2020.

3. Without knowing the details of your contributions made for 2020, it's impossible to say how much of you basis in nondeductible traditional IRA contributions applies to your 2020 Roth conversions and how much carries forward to 2021.