Help... IRA Backdoor excess converted to Roth next year, then removed

[crazyRoth333]

Please HELPPP!!!!

I've gotten myself into quite a mess with 2019. 

Here's there situation

2019 - Contributed 6000 to IRA  (but I didn't qualified due to lack of income)

2020/4 -  IRA grew to 6100, converted to Roth

2020/6 (still within 2019 filing deadline)      realized the mistake. Removed all amount out of Roth. Balance was 5500.

I received 2020. 1099-R of the following lines

 IRA

 Box1: 6100. Box2a: 6100   Box2b:x.  Box7: 02.  IRA:x

Roth
 Box1. 5500. Box 2a: 0.                        Box 7:8J

In 2019, no 8606 form was filed since it was contribution was removed.  

Since there's no 8606 from 2019, how to I report the conversion gain of 100 (instead of 6000)? How do I explain the basis?

Also, should the 5500 be ammended and put into 2019 1040 Line 4, or should that be 2020 Tax?

Last but not least, how in the world to I enter all these to turboTax?!?!

Thanks a lot!

[macuser_22]

Your 1099-R's tell a different story.    They say that you took a normal distribution from the Traditional IRA of $6,000 and you say you converted that to a Roth (code 2 with IRA box checked)..     That is a taxable conversion and also subject to an additional 10%  early distribution penalty.  Unless that contribution was non-deductible on your 2019 tax return with a 2019 8606 form.

The code 8J says you withdrew $5,500 from the Roth as a "return of contribution".    That is not taxable since it is just removing your own contribution.

Just enter the 1099-R's as they are.  They appear to be correct.

On your 2019 tax return  did you enter the $6,000 Traditional IRA contribution in the IRA contribution interview?   If you did did you deduct it on the 2019 1040, Schedule 1 line 19?

If you did not report it at all then you must amend and enter it and make it non-deductible in the interview when it asks so that yiu will generate a 2019 8606 form that you need to enter for the 2020 1099-R for the $6,000 Roth conversion that will offset some or all of the tax.

[crazyRoth333]

Thanks for your help Macuser22.

I didn't file 8606 in 2019 because it said "if the excess contribution is removed within filing deadline" do not include it in 8606. But now I realize the problem of not having a 8606 leaves me with no basis for the conversion.   

I also didn't have schedule1 either. None of ira contribution were deducted in 2019.

I see that in 2020 8606 line 2 that there's something about adjusted basis due to returned excess contribution in the instructions. I wonder if there's where I could put in a statement explaining this whole mess.

Thank you again for walking me thru my mess.

[macuser_22]

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@crazyRoth333 wrote:

Thanks for your help Macuser22.

I didn't file 8606 in 2019 because it said "if the excess contribution is removed within filing deadline" do not include it in 8606. But now I realize the problem of not having a 8606 leaves me with no basis for the conversion.   

I also didn't have schedule1 either. None of ira contribution were deducted in 2019.

I see that in 2020 8606 line 2 that there's something about adjusted basis due to returned excess contribution in the instructions. I wonder if there's where I could put in a statement explaining this whole mess.

---

Why was it excess.   Did you contribute more than your earned compensation to the Traditional IRA but converted it to the Roth without removing it ?

You contributed $6,000 and removed $5,500 - where is the other $500?

Your conversion is fully taxable and you have no basis in the IRA to offset the tax.

Line 2 only says to *reduce* the amount for any amount returned.

It appear that you thought $5,500 was excess after it was in the Roth and removed it from the Roth.

[crazyRoth333]

>Why was it excess.   Did you contribute more than your earned compensation to the Traditional IRA but converted it to the Roth without removing it ?

I had no income that year. I can't convert it to ROTH either since I won't quality.

>You contributed $6,000 and removed $5,500 - where is the other $500?

The value shrink. I took the whole amount out. That was what my custodian did.

>Your conversion is fully taxable and you have no basis in the IRA to offset the tax.

Line 2 only says to *reduce* the amount for any amount returned.

>It appear that you thought $5,500 was excess after it was in the Roth and removed it from the Roth.

Hmm. Not understanding what you mean. I put in 6k, converted 6.1k, took the whole thing out, so there should be no excess at all, since the entire amount was removed, just a bit circuitous. 

[macuser_22]

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@crazyRoth333 wrote:

>It appear that you thought $5,500 was excess after it was in the Roth and removed it from the Roth.

Hmm. Not understanding what you mean. I put in 6k, converted 6.1k, took the whole thing out, so there should be no excess at all, since the entire amount was removed, just a bit circuitous. 

---

I see.

Traditional and Roth IRA's are separate.    You had an excess in the Traditional IRA at the point that you made the contribution, but you did NOT remove it, instead you converted it to a Roth IRA which was an invalid conversion and created an excess in the Roth which you removed and is not taxable.

What you should do is amend 2019 and enter the $6,000 Traditional IRA contribution as a non-deductible contribution to generate a 2019 8606 got with the $6,000 on line 1, 3 and 14.

Then enter the 2020 1099-R in 2020 and use the 8606 line 14 basis to offset the tax (this assumes that you have no other Traditional IRA's and the Traditional IRA value is zero).

[crazyRoth333]

Thank you again.

So, does that mean I have an excess contribution of 6k in 2019?  Which means I'll have to file 5329 in 2019 and pay excess contribution penalty?

[macuser_22]

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@crazyRoth333 wrote:

Thank you again.

So, does that mean I have an excess contribution of 6k in 2019?  Which means I'll have to file 5329 in 2019 and pay excess contribution penalty?

---

No.  You had a 2019 excess, but you moved that excess to  a Roth IRA and removed it before the deadline for 2019 so there is nothing to report on a 5239. (It was still a 2019 excess but now in a Roth).

[crazyRoth333]

so, in my 2019 1040 line 4a, do I report any distribution?
Or nothing there?  Since it's technically left there, and isn't a distribution anyway?

[macuser_22]

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@crazyRoth333 wrote:

so, in my 2019 1040 line 4a, do I report any distribution?
Or nothing there?  Since it's technically left there, and isn't a distribution anyway?

---

No.  You had no 2019 distribution, you need to report the 2019 *contribution* and make it non deductible on a 8606 form, as I said above.

[crazyRoth333]

Thank you a million. That resolved it. 

That said, I do have one last question about filing 8606 for 2019.  Do I need to send in a 1040x along with the additional 8606?  If so, do I use turbotax to generate 8606?  What should be in this 1040?

(In the past, Turborbox  generated an incorrect 1040x in the past which triggered a whole lot of taxbill. So i'm really afraid of dealing with 1040x).

[macuser_22]

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@crazyRoth333 wrote:

Thank you a million. That resolved it. 

That said, I do have one last question about filing 8606 for 2019.  Do I need to send in a 1040x along with the additional 8606?  If so, do I use turbotax to generate 8606?  What should be in this 1040?

(In the past, Turborbox  generated an incorrect 1040x in the past which triggered a whole lot of taxbill. So i'm really afraid of dealing with 1040x).

---

Yes.   You just enter the 2019 IRA contribution.

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 not a recharactorazition.)

That will add the 8606 with the $6,000 on line 1, 3 & 14.

Say the reason for amending is to add the IRA contribution that was nit filed properly on the original tax return.

Mail the 1040X and 8606 to the IRS.

=======================

2019 and earlier can only be amended with TurboTax using the CD/download version installed on a PC or Mac computer.

2019 amended Federal returns can either be e-filed or mailed. 2018 and earlier amended returns can only be mailed. It is suggested that it be mailed certified with return receipt (or other tracking service) to verify that the IRS or state receives it.

See this TurboTax FAQ for detailed amend instructions:
https://ttlc.intuit.com/questions/1894381-how-to-amend-change-or-correct-a-return-you-already-filed

-- Amended returns can only be mailed - allow 8-12 weeks - can take up to 16 weeks (4 months) for processing.

You can check the status of the amended return here, but allow 3 weeks after mailing.

https://www.irs.gov/filing/wheres-my-amended-return

[crazyRoth333]

Apologies for the delay. I finally resurrected 2019 turbotax to deal with the amendment process.
I'm struggling how to input it (which was the issue i got into when i first filed it). If i enter the 6k contribution, it gets me a penalty. If i say it's removed, then it doesn't generate 8606 form. 
any Ideas?

I finally found my 2019 turbotax to deal with the amendment process.

I'm struggling how to input it.

> Deduction&Credits

> Traditional&Roth IRA COntribution

> Select the Kind of IRA you own/contribute in 2019
     Checked x Traditional IRA
                       X Roth IRA
> No.  (a repayment to Retirement Distrubution)
> How much is contributed
   2019: 6000
> How much of the amount is Switch or "Recharacterize" (doesn't include conversion or rollovers) to Roth IRA?
   > 0   (is this right?)
> Did you make a Roth IRA contribution in 2019?
   > No
> Do you have any excess Roth Contribution:
   > No
> Contributions withdrawn before due day.
    > Enter any excesxss contribution you withdrew before July 15
   > 0
   > Enter any contributions you withdrew before July 15
  > 6000

[macuser_22]

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@crazyRoth333 wrote:

Apologies for the delay. I finally resurrected 2019 turbotax to deal with the amendment process.
I'm struggling how to input it (which was the issue i got into when i first filed it). If i enter the 6k contribution, it gets me a penalty. If i say it's removed, then it doesn't generate 8606 form. 
any Ideas?

I finally found my 2019 turbotax to deal with the amendment process.

I'm struggling how to input it.

> Deduction&Credits

> Traditional&Roth IRA COntribution

> Select the Kind of IRA you own/contribute in 2019
     Checked x Traditional IRA
                       X Roth IRA
> No.  (a repayment to Retirement Distrubution)
> How much is contributed
   2019: 6000
> How much of the amount is Switch or "Recharacterize" (doesn't include conversion or rollovers) to Roth IRA?
   > 0   (is this right?)
> Did you make a Roth IRA contribution in 2019?
   > No
> Do you have any excess Roth Contribution:
   > No
> Contributions withdrawn before due day.
    > Enter any excesxss contribution you withdrew before July 15
   > 0
   > Enter any contributions you withdrew before July 15
  > 6000

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I apologize, after rereading your question, I know of no way of doing it the way I suggested.      You had until the due date (or extended due date) to remove the Traditional IRA excess.   You did not do that but converted an invalid contribution to a Roth which was also invalid.   You had the Roth returned to you but that does not account for the tax on the conversion and I know of no way to account for that.

Sorry for misleading you.

I would suggest consulting a tax professional in your area for help.   Many things can be done with professional  software that do-it-yourself software cannot do.