How do I enter a backdoor Roth IRA conversion if my conversion contains contributions made in 2021 for both 2021 and 2020

[VincentSun]

Basically my conversion contains contributions made in 2021 for both 2021 and 2020. So I receieved $12,000 1099R

I learnt from this post recently - https://ttlc.intuit.com/community/entering-importing/help/how-do-i-enter-a-backdoor-roth-ira-convers... and but I didn't file out a Form 8606 for 2020 last year. 

So how do I enter a backdoor Roth IRA conversion now? Thank you.

[DanaB27]

If you didn't file Form 8606 last year then you will need to amend your 2020 tax return to include the $6,000 nondeductible contribution. Please see How do I amend my 2020 return?

On your 2020 tax return enter the nondeductible contribution to the traditional IRA:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed ($6,000)
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
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).

TurboTax will create Form 8606 for you and you should have the basis of $6,000 on line 14 to carry to 2021.

On your 2021 tax return

To enter the nondeductible contribution to the traditional IRA:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed ($6,000)
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” since you had nondeductible contributions before this tax year
10. Enter your $6,000 basis in the Traditional IRA from your 2020 Form 8606 line 14.
11. 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).

To enter the 1099-R distribution/conversion:

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?"
12. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[VincentSun]

Super appreciate for the reply. A few questions.

1. On my 2021 return to enter the nondeductible contribution to the traditional IRA:

1.1 after #10 - Enter your $6,000 basis in the Traditional IRA from your 2020 Form 8606 line 14. It is asking 'Tell Us the Value of All Your Traditional IRA Accounts'. What is it going to be? 0 or 6000? I have converted $6,000 from Traditional IRA to Roth IRA.

1.2 there isn't question 'Choose Not to Deduct IRA Contributions'. Is it normal?

2. On my 2021 return to enter the 1099-R distribution/conversion

1.1 for #8, there isn't question about 'What Did You Do With The Money'. But there is 'Tell us if you moved the money through a rollover or conversion' with 4 options.

a. I rolled over some or all of it to an IRA or other retirement account within the time limits (normally 60 days)

b. I converted some or all of it to a Roth IRA

c. I did a combination of rolling over and converting some or all of this money

d. I didn't rollover or convert this money

What should I choose?

If I choose 'I converted some or all of it to a Roth IRA'

it will ask 'Did you convert all of this $12,000.00 (Box 1) to a Roth IRA?' with 3 options.

a. Yes, all of this money was converted to a Roth IRA

b. No, I converted less than $12,000.00

c. I didn’t convert any of the money

Should I choose 'a'? or 'b' and enter $6,000?

[DanaB27]

1. Generally, you will find the value on your end-of-the-year statement. Please enter this value for the “Tell us the value of all of your traditional IRA accounts”. Yes, it can be normal that you do not get the question “Choose Not to Deduct IRA Contributions”. 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 that it isn’t deductible because of your income and then a screen saying $0 is deductible

2. Yes, you will select b) I converted some or all of it to a Roth IRA, and then a) Yes, all of this money was converted to a Roth IRA.

@ VincentSun

[VincentSun]

Thank you.

After I enter the 1099-R distribution/conversion, the Federal Tax Due is increased by around $3K  ($12,000 contribution to IRA for 2 years). But the money I transfered to IRA is from my checking account which is purely after tax. Why do I need to pay for extra tax here? Is that normal? or do I enter anything wrong? 

[DanaB27]

Was the value of your traditional/SEP/SIMPLE IRAs on December 31, 2021, more than $0 (you had pre-tax funds left in the account)? 

 If yes, then the pro-rata rule applies and each conversion/distribution will have a taxable and nontaxable part. You can see the remaining basis on line 14 of Form 8606, this basis can be carried forward. Therefore each distribution/conversion in the future will have a taxable and nontaxable part until the basis is all used.

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.

@VincentSun

[Jenny011]

I have a very very similar situation if not the same. Just would like the clarify. My 1099-r is for $12000 because I made after tax contributions in 2021 for both 2021 and 2020. But when I enter the 1099-r for each year (amend for 2020) I am entering it as if I received a 1099-r for each year one for $6000, right? So I am entering as income and deducting it with the steps mentioned below for current 2021 and amended 2020 taxes. 

[DanaB27]

No, you enter the  2021 Form 1099-R only on your 2021 tax return.  

You will have to make sure that you have entered the nondeductible traditional contribution for 2020 on your 2020 tax return. Then TurboTax will create a 2020 Form 8606 with the basis on line 14. This basis will be entered on your 2021 tax return.

To enter the nondeductible contribution to the traditional IRA:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. 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.
9. Enter your basis in the Traditional IRA from your 2020 Form 8606 line 14 (if you had a basis in the prior year)
10. 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).

To enter the 1099-R conversion (only on your 2021 tax return): 

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 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@Jenny011

[Jenny011]

Thank you! This is helpful. Just to confirm, I am entering the back door for 2020 as income then deduct per the guidance… for 2020 I will not be entering any 1099-r forms. Then for 2021, I will import the full 12000 but only report that contributed 6000 in 2021 even though 1099-r has a total of $12000. Is this correct??

@DanaB27 

[DanaB27]

Yes, you will enter the $6,000 nondeductible traditional IRA contribution for 2020 on your 2020 tax return with the steps above. 

Yes, you will enter the $6,000 nondeductible contribution for 2021 on your 2021 tax return. You also enter the $6,000 basis from 2020 Form 8606 line 14 when TurboTax asks about a prior-year basis. Yes, you will import the Form 1099-R with the full $12,000 on your 2021 tax return.

@Jenny011

[Jenny011]

Thank you so much!!! 

@DanaB27 

[VincentSun]

The value of my traditional IRAs on December 31, 2021 is $0. And it is a purely clean account which only has after tax funds. So I don't understand why extra tax is required for that. Or I might enter something wrong in certain step? Thank you.

[DanaB27]

If your value of all your traditional, SEP, and SIMPLE IRAs is $0 on December 31, 2021, and had no earnings then line 4b of Form 1040 should be $0. 

On Form 8606 you have on line 1 $6,000, line 2 $6,000, and line 5 $12,000, correct?

@VincentSun

[Jenny011]

Hi @DanaB27 ,

Mine looks like this. Somewhat different than as described above. Did I do it wrong?? 

8606- line 1= $6000

line 2- $6000

line 14- $12,000

all other lines are $0 or blank 

1050 line 4b has the script ROLLOVER but is indeed $0. 

does this sound accurate to you? 

[DanaB27]

Yes, it seems you selected the wrong option when you answered the follow-up questions after entering your Form 1099-R. 

You selected rollover you need to select that you converted the funds.

For TurboTax Online:

1. Enter the information from your 1099-R
2. 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”
3. Confirm that you converted all of the $12,000 to Roth

For TurboTax Desktop/Download:

1. Enter the information from your 1099-R
2. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
3. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the $12,000 next to "Amount converted to a Roth IRA account"

@Jenny011