duplicate backdoor Roth

[Anonymous]

In 2020, I mistakenly did a backdoor Roth twice, $6000 each time. So I have a total of $12000 (nondeductible) contributions to my Traditional IRA and $12000 conversions to Roth. I received two 1099-Rs, each showing a $6000 conversion from the Traditional IRA to the Roth.

I have contacted my broker and they will withdraw $6000 (plus any earnings) excess from my Roth before the April filing deadline. My understanding is that they cannot reverse the conversion and return the money to the Traditional IRA first, so I think they'll send cash to my bank directly from my Roth IRA.

• Because I will withdraw the $6000 excess before the filing deadline, it seems that I do not necessarily need to file a form 5329.

• But, because I need to record both 1099-Rs, I get a form 8606 with $12000 of distributions and only $6000 of contributions (line 17 of 8606).

It seems like I have a few options:

1) Report an excess Traditional IRA contribution on a 5329 line 16, but a $0 on line 17 (zero balance so $0 penalty). For 8606, I would report $12000 for line 16 (amount converted) and $12000 for line 17 (the basis of the amount for line 16), making the taxable amount $0. In 2022, I'll receive a 1099-R for the withdrawn excess including taxable earnings. (Not sure exactly how I'll report that next April.)

2) Report no excess contribution, because it was withdrawn before filing deadline, so no form 5329. I'll report $12000 on line 16 of the 8606 and $6000 on line 17, resulting in $6000 taxable distribution on line 4b of the 1040. I would have to pay ordinary income tax on $6000, but then somehow in when filing taxes for 2022 get those taxes back?

3) Report only $6000 on 8606 line 16 and $6000 for line 17. This seems risky, because I did receive two 1099-Rs for $6000 each, so it seems like that will trigger something for the IRS.

[edit] 4) Somewhere between 1 & 2. Report $12000 on line 16 and 17 of the 8606, resulting in zero taxable distribution of line 4b of 1040. Do not submit a form 5239 because the excess contributions were withdrawn before the filing deadline. (This assumes no gains.) Nevermind

Thoughts?

[Anonymous]

Maybe @macuser_22 will know?

[macuser_22]

Are you saying that you had a $6,000 excess contribution to the Traditional IRA?

What code is in box 7 on the 1099-R.

[Anonymous]

Both 1099-Rs show:

Distribution code: 2 (IRA/SEP/SIMPLE checked)

And yes, I had an excess of $6000 to my (nondeductible) Traditional IRA. But then I converted that excess to a Roth IRA. And I'm in the process of withdrawing that excess from my Roth before the filing deadline.

[macuser_22]

I don't know what you do in this case.  

@dmertz any ideas?

[dmertz]

This is something that will require extensive explanation to the IRS (and to the Roth IRA custodian).  Given that you were doing backdoor Roth, presumably you have no other amounts in traditional IRAs.  The second contribution that was an excess traditional IRA contribution became an excess Roth IRA contribution when converted to Roth.  Because you withdrew everything from the traditional IRA, that effectively constituted a return of contribution from the traditional IRA and the movement of this money to a Roth IRA constituted a regular excess contribution to the Roth IRA.  You'll have to explain this to the Roth IRA custodian so that they will do a proper return of contribution from the Roth IRA.

You'll likely have to submit a substitute Form 1099-R (Form 4852) with code 8 in place of the one with code 2 to report this distribution as a return of contribution from the traditional IRA.  You'll also want to make sure that the custodian prepares the 2021 Form 5498 from the Roth IRA reporting a regular contribution, not a conversion contribution, so that this will match up with the code JP 2022 Form 1099-R that will report the return of the Roth IRA contribution (also reportable on your 2021 tax return).

[Anonymous]

Thanks for you comments!

That all makes sense. My understanding from the form 5239 instructions is that I do not include any excess contributions on that form if I withdraw the excess and gains before the filing deadline. So what do you think about my option 4 above that I added?

4) Somewhere between 1 & 2. Report $12000 on line 16 and 17 of the 8606, resulting in zero taxable distribution of line 4b of 1040. Do not submit a form 5239 because the excess contributions were withdrawn before the filing deadline. (This assumes no gains.)

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[dmertz]

To have $12,000 on line 17 you must have $12,000 on line 1.  $12,000 on line 1 implies that you have an excess contribution traditional IRA contribution of $6,000 reportable on Form 5329 and subject to a 6% excess contribution penalty.  Also, an excess contribution to the traditional IRA is not really eligible to be converted to Roth.  Doing so results in a failed conversion, so reporting a $12,000 conversion (on line 16) would also likely be improper.

The only way that the Roth IRA custodian can legitimately make a return of contribution from the Roth IRA is if it treats the excess amount in the Roth IRA as having gotten there as a regular contribution, not a conversion contribution.

[Anonymous]

I see. That makes sense. I'll contact my custodian to see what they can do. In terms of not treating this as a conversion and instead as a contribution. Thanks for your help. 

[macuser_22]

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@Anonymous wrote:

I see. That makes sense. I'll contact my custodian to see what they can do. In terms of not treating this as a conversion and instead as a contribution. Thanks for your help. 

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You might have a problem though.  Many (maybe most) IRA custodians that answer the phone have little of no knowledge of tax law for these situations.  It can be a real hassle to escalate to a knowledgeable person. Good luck.