Form 8606 for Rotch Conversions

[mattslegacy]

Hello,

I realize now (too late) that I received a 1099-R from Vanguard in 2018, and failed to fill out an 8606. 

My income rose at the end of 2017 beyond Roth contribution limits, so I sought to utilize the back door method. I began withdrawing $200/month from my paycheck, to my Traditional IRA brokerage account, totaling $2,600. (The first withdrawal was the last week of December 2017, but I converted it the first week of January, so I did receive a 5498 Form of $200 for 2017 but no 1099-R).

I was diligent in converting the money days after each deposit, and so my 2018 1099-R only states a gross distribution/taxable amount of $2,600.69.

More importantly, I failed to fill out form 8606, to state that these were nondeductible contributions, using money from my checking account. I'm not sure where to go from here. I did not deduct this after-tax money on my tax returns, but I realize now that I should have filed this from. I just don't want to pay taxes on this one day when it was non-deductible.

Thank you

[macuser_22 · Accepted solution]

If you made 2017 non-deductible contributions the  you must report that on a 2017 8606 form.   You can send the 8606 by itself if there is not other reason to amend 2017.

https://www.irs.gov/pub/irs-prior/f8606--2017.pdf

https://www.irs.gov/pub/irs-prior/i8606--2017.pdf

If you did not properly report the "Backdoor Roth" in 2018 then amend 2018 to report it.

Here is the procedure that I use.

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Note the dates are for a 2018 1099-R on an 2018 tax return.

This so-called “back-door Roth” method ONLY works if you have NO OTHER Traditional IRA accounts.  If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself.  Only if you started with NO Traditional, SEP & SIMPLE IRA and ended up with a zero amount in ALL Traditional, SEP & SIMPLE IRA accounts will this Roth conversion not be taxable.

First you must enter your Traditional IRA contributions (if there were 2018 contributions).

IRA contribution
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),,
Retirement & Investments,
Traditional & Roth IRA contribution.

Be SURE to answer the follow up that the are choosing to make this contribution NON-DEDUCTIBLE - if that screen comes up. (DO NOT say that you moved (recharacterized) the money to a Roth) – this is a conversion, not a recharactorazition.

Then enter the 1099-R that shows the distribution.

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),,
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2018.     (Usually zero unless you also made a 2017 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2018 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2018, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.

Also see this TurboTax FAQ:
https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion