Erroneous 2023 backdoor Roth contribution - ignored pro rata rule and failed to file Form 8606. Can anyone help?

[elizabethelmoreesq]

I filed my 2023 taxes in March 2024 and a few days later contributed $6500 in after-tax money to a traditional IRA with zero balance, and then rolled it over into a Roth IRA. I made two mistakes: (1) Because I made the 2023 contribution after I filed my 2023 taxes, it's not reflected on my 2023 return - no form 8606 or amount reflected in line 20 (aside from some other stray amounts). Can I simply file an amended return with a form 8606 and call it a day? (2) I misunderstood the pro rata rule. I have another traditional IRA with a good amount of money in it. I thought as long as I segregated the before and after tax accounts, I could do the backdoor Roth without triggering tax liability. That was obviously incorrect. Do I need to amend anything on my 2023 return or do anything different on my 2024 return to make sure I've properly reported this?

[DanaB27]

Yes, you can file the 2023 Form 8606 if it wasn't included on your 2023 original return. Please see How do I amend my federal tax return for a prior year? You will enter the nondeductible IRA contribution and TurboTax will fill out Form 8606:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “traditional IRA”
4. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
5. Enter the amount you contributed
6. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
7. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
8. Enter your basis in the Traditional IRA from your 2022 Form 8606 line 14 (if you had a basis in the prior year)
9. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

You should have a $6,500 basis that you will enter in your 2024 return when you report the conversion you made in 2024.

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue"
6. Answer "Yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2023 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

Yes, it the eyes of the IRS all traditional/SEP/SIMPLE IRAs are one account and the pro-rata rule will apply in your case. You will have to pay taxes on your 2024 conversion.

The Backdoor Roth only works if your traditional/SEP/SIMPLE IRAs are empty.  If you plan to use this strategy in the future you might want to think about a reverse rollover where you rollover IRA money to a company plan, like a 401(k). Only pre-tax funds can be rolled from an IRA to a company plan. Therefore, you would isolate the basis and could start the Backdoor Roth procedure fresh. But it only works if your employer allows it, not all plans do.

[elizabethelmoreesq]

Thank you. This was so helpful. I could follow all of the steps. I am really bummed about that pro rata rule, but at least I know to never try to do a backdoor roth contribution again (no employer 401k option).

[fanfare]

Can I simply file an amended return with a form 8606 and call it a day?

As long as your understanding of your actions keeps changing you will have to amend.

You will also need to include a check for the tax on the taxable amount of your Roth conversion.

@elizabethelmoreesq