In 2018 + 2019, I made after-tax contributions to my IRA, but don't see form 8606 in my returns. I didn't designated the contributions as being after tax. What to do?

[benjamingray7]

I'm also planning to re-characterize my 2019 IRA contribution to my Roth IRA. I'm guessing I'll need to refile? My health insurance is currently subsidized based on my income and I'm guessing this will increase my AGI. How will this work?

[macuser_22]

If your income was too high to contribution directly to a Roth then you cannot "recharacterize"  which is the same as a direct contribution.  You can "convert" the Traditional IRA to a Roth.

If you did not deduct the 2018 contributions the  you must file a 2018 8606 reporting the non-deductible contribution.

Enter the 2019 non-deductible contribution as below.

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  If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself.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 2019 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 2019.     (Usually zero unless you also made a 2018 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2019 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 2019, 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

[benjamingray7]

Thanks so much for the response, I really appreciate your help.  My income isn’t too high to contribute to a Roth directly so I’m not talking about a conversion.  I just realized that for 2019 I should have contributed to my Roth instead of the IRA for better tax benefits. I have only the traditional IRA and the ROTH, no SEP or SIMPLE.  The traditional IRA was rolled over from a company 401k from years ago and I didn’t touch it for years until 2018.  Sorry I’m trying to understand, it seems like I have two issues to deal with:

2018 – I contributed to my IRA with after-tax dollars for the first time in many years, but I didn’t designate it as being an after-tax contribution.  So I should submit form 8606 for 2018 and that’s all I need to do for 2018?

2019 – I changed my mind and want to re-characterize my IRA contribution into my Roth IRA. Afterwards I’ll re-file my 2019 taxes.  Because I originally entered this as a standard IRA contribution, my AGI will go up but when I run this change through Turbotax, it seems to only affect my state taxes (I owe a little bit as expected). My concern is that I received federal subsidy for health insurance for 2019 because of my low income, but there doesn’t seem to be any change with my federal return. Am I missing something?

[macuser_22 · Accepted solution]

---

@benjamingray7 wrote:

Thanks so much for the response, I really appreciate your help.  My income isn’t too high to contribute to a Roth directly so I’m not talking about a conversion.  I just realized that for 2019 I should have contributed to my Roth instead of the IRA for better tax benefits. I have only the traditional IRA and the ROTH, no SEP or SIMPLE.  The traditional IRA was rolled over from a company 401k from years ago and I didn’t touch it for years until 2018.  Sorry I’m trying to understand, it seems like I have two issues to deal with:

2018 – I contributed to my IRA with after-tax dollars for the first time in many years, but I didn’t designate it as being an after-tax contribution.  So I should submit form 8606 for 2018 and that’s all I need to do for 2018?

2019 – I changed my mind and want to re-characterize my IRA contribution into my Roth IRA. Afterwards I’ll re-file my 2019 taxes.  Because I originally entered this as a standard IRA contribution, my AGI will go up but when I run this change through Turbotax, it seems to only affect my state taxes (I owe a little bit as expected). My concern is that I received federal subsidy for health insurance for 2019 because of my low income, but there doesn’t seem to be any change with my federal return. Am I missing something?

---

Then yes, if you can contribute to a 2019 Roth  you must tell the financial institution to recharacterize the Traditional IRA contribution to a Roth.    They will issue a 2020 1099-R with a code R next year that you can ignore if you enter it now.

A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2019 return. It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2019 tax return.

The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

The proper way to report the recharacterization and earnings which is to enter the 2018 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.

For 2018, it is to late to recharacterize so if your MAGI allows a deductible Traditional IRA contribution then  you can either amend 2018 and take the deduction that will probably result in an additional refund, or file a 2018 8606 form making it non-deductible that will lower tax on future Traditional IRA distributions.

[benjamingray7]

Thanks again.  I still don't understand how this will affect my health insurance subsidy for 2019.

 If I re-characterize my 2019 IRA contribution to a Roth IRA contribution, my MAGI should go up.   It means I received too much subsidy for my health insurance. Will I have to pay this back? 

[macuser_22]

Depends.  If the Traditional IRA contribution was before-tax deductible then it would have reduced your MAGI, but if you recharacterize it then it becomes an after tax contribution that adds back to your MAGI.    You cannot have it both ways.

[benjamingray7]

Yes I understand, my MAGI will go up.  But when I make my changes in Turbotax, my MAGI goes up but my federal refund doesn't change. When do I pay back the subsidy? 

Regarding my 2018 changes, I"m filling out form 8606 now. It says it should be attached to my 1040. Do I have to print out my old 1040 or can I send in the 8606 by itself? 

[macuser_22]

---

@benjamingray7 wrote:

Yes I understand, my MAGI will go up.  But when I make my changes in Turbotax, my MAGI goes up but my federal refund doesn't change. When do I pay back the subsidy? 

Regarding my 2018 changes, I"m filling out form 8606 now. It says it should be attached to my 1040. Do I have to print out my old 1040 or can I send in the 8606 by itself? 

---

If you made a 2019 Traditional IRA contribution that was deductible then that would decrease your MAGI by that amount.   If you then recharacterize that before-tax Traditional  IRA contribution to an after tax Roth contribution the amount is added back into you MAGI that is used to determine the subsidy.   If the MAGI goes up the subsidy goes down.

You can send the 8606 by itself if nothing else changed on your tax return  assuming that you did not deduct it or report it at all in 2018.  

[benjamingray7]

  I'm not sure you're understanding my question. I have already made the changes. My MAGI has gone up. My federal refund has not changed. 

My question is this:   When and how will I be required to pay back the subsidy for the health insurance? 

[fanfare]

when your income changes, even if virtually, you're supposed to contact the exchange. 

https://www.healthcare.gov/keep-or-change-plan/

[benjamingray7]

Great thank you! You've been really helpful, I appreciate your time. 

[macuser_22]

I cannot see your tax return.  Your refund is bases on your taxable income on the 1040 line 11b.  It is entirely possible to increase the AGI on line 8b with out changing line 11b depending on what else is on your tax return.   I suggest you print the 1040 form before and after making the change to see what lines change.

Your premium tax credit is calculated  on the 8962 form with the new MAGI on line 2a.  Depending on the amount of AGI that may or may not change the amount of subsidy tax credit - look at that form also before and after to see what, if anything, changes..  

[benjamingray7]

Thanks so much, I appreciate it!