how to report backdoor roth - step by step

[dmertz · Accepted solution]

The traditional IRA contribution that you made for 2020 in 2021 is reportable on your 2020 tax return.  Any Roth conversion that you did in 2021 is reportable on your 2021 tax return.

If you similarly made a traditional IRA contribution for 2019 in 2020 and you did a Roth conversion of that money in 2020, the traditional IRA contribution for 2019 was reportable on your 2019 tax return and the 2020 Form 1099-R reporting the distribution that was converted to Roth in 2020 is reportable on your 2020 tax return.  Any amount that appeared on line 14 of your 2019 Form 5329 transfers to line 2 of your 2020 Form 8606 to be used in determining the taxable amount of your 2020 tax return.

[thidz]

I followed the instructions on the link but turbotax keeps telling me that box 2a (taxable amount) cannot be 0 if line 4 (federal income tax withheld) is 0 ("no prior year excess traditional IRA contribution) and won't let me efile. Also the turbotax website did not fully match the instructions in the link so not sure if there have been updates since last year. Do you have any thoughts/ideas on why this may be coming up? Thanks!

[dmertz]

Box 2a of a code 1, 2 or 7 Form 1099-R with the IRA/SEP/SIMPLE box marked must have the same value in box 2a as is in box 1.  With tax withholding in box 4, the code in box 7 cannot be 2.

[thidz]

nevermind, ignore my question, thanks!

[Sika]

In my case, I contributed to a roth IRA account first before recharacterizing to a traditional IRA to do the backdoor IRA. All of this was done in Feb 2021 for 2020 tax season so I don't have 1099 forms yet. In reporting with a downloaded version of turbo tax, what parts of this step by step process should I do differently because my form 8606 and 1040 seem to be riddled with errors at the moment. I would greatly appreciate some help. 

[macuser_22]

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@Sika wrote:

In my case, I contributed to a roth IRA account first before recharacterizing to a traditional IRA to do the backdoor IRA. All of this was done in Feb 2021 for 2020 tax season so I don't have 1099 forms yet. In reporting with a downloaded version of turbo tax, what parts of this step by step process should I do differently because my form 8606 and 1040 seem to be riddled with errors at the moment. I would greatly appreciate some help. 

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The proper way to report the recharacterization and earnings which is to enter the 2020 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount The amount of the original Roth contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

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

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

Say you do not want to deduct it if the question comes up to be an after-tax contribution reported on a 8606 form (line 1 & 14) as a "basis" in the Traditional IRA that will reduce the tax of future distributions.

[Sika]

Thank you so much. 

So when asked about total contributions to traditional IRA account, the correct answer is 'zero' then since I technically did not contribute to the traditional IRA account but 'recharacterized' funds to that account only to be transferred back to the roth IRA account. Is this correct? 

I tried the alternative by putting the amount I 'received' from the recharacterized roth account and my contribution doubled requiring me to pay 6% tax on the excess further down the line. So it seems because of my route to the backdoor roth, my traditional IRA contribution is supposed to be 'zero'. right? Thanks

[TXW]

I do this on Turbotax Premier (and check the 1040 and Schedule 1 as advised) and it then says that "You Have an Excess Roth Contribution" and because your contrubtion isn't permitted, it's considered an excess contribution of $7,000" and the next screen says "You Currently Have a Penalty", WTF?

[brightxy]

Hello,

I believe your answer would help in my situation, but I hope to rephrase my understanding to make sure I got it right. Hope you can help confirm:

Situation: In early 2021, I contributed after-tax money into my Traditional IRA for year 2020, and then followed the backdoor Roth to convert it into Roth IRA. Hereby I didn't receive any 1099-R form from my investment account. 

As you mentioned, since the conversion happened in 2021, 1099-R should be reportable in my 2021 filing, which means if reflecting into  TurboTax's official guide , I should do Step 1 and skip Step 2 (all the stroke-through steps). Is it correct understanding?:

Step 1: Enter the Non-Deductible Contribution to a Traditional IRA

1. Open your return if it’s not already open.
2. Search for ira contributions and select the Jump to link in the search results.
3. Select Traditional IRA on the Traditional IRA and Roth IRA screen and continue.
4. Answer Yes on the Did you Contribute To a Traditional IRA? screen.
5. Answer No on the Is This a Repayment of a Retirement Distribution?
6. On the Tell Us How Much You Contributed screen, enter the amount contributed and continue.
7. Answer No on the Did You Change Your Mind?
8. Depending on your situation, answer the remaining questions.

Step 2: Enter the Conversion from a Traditional IRA to a Roth IRA

1. Inside TurboTax, search for 1099-r and select the Jump to link in the search results.
2. On the Your 1099-R screen, answer Yes to Did you have any of these types of income in 2020? and continue.
   • If you land on the Your 1099-R Entries screen instead, select Add Another 1099-R.
3. Select how you want to enter your 1099-R (import or type it in yourself) and follow the instructions.
4. You should see the Good News: You Don’t Owe Extra Tax on This Money screen. Continue.
5. Answer No to Did You Inherit This IRA?
6. On the What Did You Do With The Money From This Payer? screen, select I moved the money to another retirement account (or returned it to the same retirement account).
7. Next, choose I converted all of this money to a Roth IRA account.
8. Continue answering questions until you come to the Your 1099-R Entries screen.

To check the results of your backdoor Roth IRA conversion, see your Form 1040:

1. Select Forms in the upper-right corner of the screen.
2. Select Form 1040 from the left menu.
3. Use the scroll bar to find:
   • Line 4a IRAs Distributions. Your backdoor Roth IRA amount should be listed.
   • Line 4b Taxable amount should be zero unless you had earnings between the time you contributed to your Traditional IRA and the time you converted it to Roth IRA.
4. Select Schedule 1 from the menu on the left side of the screen. Line 19 IRA deduction should be blank.
5. To return to where you left off in TurboTax, select Step-by-Step in the upper-right corner of the screen.

Thank you in advance

[macuser_22]

That is correct.   Report the 2020 contribution.    The conversion  will be reported next year.

[Elka]

I have spent 2 days already trying to figure out how to file backdoor conversion. I have the following situation: 

IRA traditional was opened in 2020, Roth IRA - 2020

1. In 2020 I contributed to ira $2000 and in a week did the backdoor conversion. 

2. Jan 2021: contributed to IRA for 2020 - $4000 and converted it in Jan 2021. 

So first I filled contribution to IRA by $6000 in TurboTax, then added 1099-R form with $2000 in box 1; box 2a; Distribution code 2; IRA/SEP/SIMPLE -X; 

When I check my Federal 1040, I see 4a - $2000 (I thought it should be $6000) and 4b -$0. 

How to check that I filled everything correctly? 

[Wondering1231]

I'm having the same problem.  Traditional IRA had 0  balance on 12/31/2019, a nondeductible 2019 contribution was made between Jan 1 & Apr 15 2020, and a nondeductible 2020 contribution was made in 2020; converted both together into a Roth; Traditional IRA account balance was (practically--a couple of cents difference) 0 on 12/31/2020.  Through tutorials on this site, I've figured out how to make the 2020 contribution get recognized as nondeductible, but I can't figure out how to make the 2019 contribution get recognized as nondeductible and nontaxable.  I've checked my 2019 form 8606 (which was imported into this year's return on Turbotax already) and the 2019 contribution is appropriately reported there--I just can't figure out why the 2020 return isn't recognizing it.  Would love help!

[dmertz]

To reach the page in 2020 TurboTax where you can enter or confirm the carry-forward from line 14 of your 2019 Form 8606 to line 2 of your 2020 Form 8606, click the Continue button on the page that lists the 1099-Rs that you've entered.

[unicorn1988]

Hey Tax experts, I was able to follow step 1 in the online version but not step 2. Specifically I don't see the questions  after uploading my 1099-R.

1. Answer No to Did You Inherit the IRA from (payer)?
2. Answer I moved the money to another retirement account (or returned it to the same retirement account) on the What Did You Do With The Money From (payer)?

And after filling everything as much as I could, the amount in 1099-R is shown as 5a Pensions and annuities in 1040, and 5b Taxable Amount: ROLLOVER. I tried to delete all 1099-Rs and restart from scratch, but still doesn't work. Does anyone know what went wrong?

[cheeku1976]

I am running into the same issue. Could someone please help?