Made a 2020 backdoor contribution in 2021, but it is creating an error (excess contribution) for my 2021 contribution (which is happening in 2022)

[ThomasTheSecond]

I appreciate any help on this topic.

I found some other posts about how to enter a backdoor roth contribution and I seem to have that entered correctly, but I must have missed something because although I made the contribution in 2021, it was for the 2020 tax year. It is now creating an error that I over contributed when I add my planned 2021 contribution. 

[DanaB27]

You will need to enter the contribution that you made in 2021 for 2020 on your 2020 tax return. You can use the instructions below to enter the nondeductible contribution on your 2020 return. TurboTax will create Form 8606 and you will have a basis on line 14 to carry forward to 2021. Please see How do I amend my 2020 return?

On your 2021 tax return:

To enter the nondeductible contribution to the traditional IRA for 2021:

1. Open your return
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” since you had nondeductible contributions in 2020
9. Enter the basis from line 14 of your 2020 Form 8606
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 distribution/conversion: 

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 “What Did You Do With The Money” and choose “I moved it to another retirement account”
5. 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"
6. On the "Your 1099-R Entries" screen click "continue"
7. Answer "yes" to "Any nondeductible Contribution to your IRA?"
8. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[ThomasTheSecond]

I already entered my 2020 contribution on my 2020 tax return. Do I need to add something into Turbo Tax to tell it that I did so? Turbo Tax does not have my previous tax returns. 

However since I made the contribution in 2021 and the rollover into my Roth happened a day later in 2021, I received a 1099R for that rollover. Whenever I enter this 1099R into my 2021 tax return it charges me taxes, but it shouldn't because it was all a non-deductible contribution that I did. 

[DanaB27]

Yes, you will enter your basis (nondeductible contribution for 2020) from 2020 in the follow-up questions when you enter your Form 1099-R (step 8).

To enter the 1099-R distribution/conversion: 

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 “What Did You Do With The Money” and choose “I moved it to another retirement account”
5. 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"
6. On the "Your 1099-R Entries" screen click "continue"
7. Answer "yes" to "Any nondeductible Contribution to your IRA?"
8. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@ThomasTheSecond

[ThomasTheSecond]

I have entered our 1099-Rs in the method you describe, but what I don't understand is why TurboTax treats this 1099-R as a taxable event when it is not. 

We did not receive a deduction for this in 2020 so why are be taxed for something that was done with after tax dollars?

The only difference between this and the other method of adding a backdoor roth contribution (as one of your previous posts describes) is that instead of the contribution and rollover occurring in the effective year (2020 in this case), the contribution and rollover happened in 2021 for the 2020 tax year.

[DanaB27]

To recap, you made in 2021 a contribution for 2020 and another contribution for 2021 and then converted both to Roth in 2021. You entered the 2020 nondeductible contribution on your 2020 tax return and therefore have a basis to carry to 2021 on your 2020 Form 8606 line 14.

On your 2021 tax return you entered your basis from 2020 during the interview (step 8), correct? Your basis should be your nondeductible contribution for 2020 (line 14 of 2020 Form 8606). Your traditional IRA was empty before you started making nondeductible contributions in 2020? You also entered your nondeductible contribution you made for 2021 under IRA contributions? And you entered your Form 1099-R for the conversion with the steps above?

If everything is entered correctly then you should have only earnings as taxable on line 4b of Form 1040.

If you still are having issues you can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Download: 

1. On your menu bar at the very top, click "Online"
2. Select "Send Tax File to Agent"
3. Click "Send"
4. The pop-up will have a token number
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

@ThomasTheSecond 

[ThomasTheSecond]

Your recap is not accurate.

in 2021 I made a non-deductible contribution for 2020 and immediately after had it converted into our Roth IRAs

Now in 2022 I will make another contribution for 2021 - I almost always do this because our income is very hard to project and thus I utilize the extensions allowed to make the contribution after 12/31 and we are always on the line whether or not we can make a direct Roth contribution or not. 

Neither of us have any traditional IRA money so our balances are always 0 after the conversion each year

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Now if I follow the instructions for a backdoor roth contribution, (add the non-deductible contribution ,which was for 2020, and then add my 1099-R) the software assumes that I am over contributing when I go to add my new 2021 contribution (even though I am not because the first contribution was for FY 2020)

If I leave out the 2020 contribution, then the software assumes the 1099-R rollover was taxable, which it should not be since it was a non-deductible contribution in the first place. 

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Did I explain that better?

What am I missing?

@DanaB27 

[ThomasTheSecond]

After looking at the actual forms I think what would resolve the issue would be if I could get my contribution amount onto Form 8606, line 8 which the IRS website instructions say: "If, in 2021, you converted any amounts from traditional, SEP, or SIMPLE IRAs to a Roth IRA, enter on line 8 the net amount you converted."

How could I do this? Am I going about this in the wrong way?

For this year because of higher deductions, my wife and I can contribute directly to a Roth IRA so lines 1-5 of Form 8606 will be blank since the non-deductible contribution was reported last year since it was a 2020 contribution and the conversion/rollover happened in 2021 before the extended time limits for the 2020 contributions ended. 

@DanaB27 

@RobertB4444 

[RobertB4444]

@ThomasTheSecond  This is the part that you're missing - you can't enter the 2021 1099-R on your 2021 return. 

The 2021 1099-R is for 2020.  You put it on your 2020 return.  It's already done.  Even though you got it with a 2021 date on it and you have it ready to go you should not enter it on your 2021 return.  You already entered it on your 2020 return.  It is done.

Now you are going to make a contribution in 2022 for 2021.  You are going to enter the amounts that you contribute in 2021 onto your 2021 return because the contribution is for 2021.  You do not need a 1099-R for that.  Next year you will get a 1099-R for the contribution but you will not enter it onto your 2022 return because it is already on your 2021 return.  

This process will continue for as long as you continue to make contributions in the allowed period after the end of the calendar year.  This is what the IRS expects you to do.  

[ThomasTheSecond]

@RobertB4444 

Thank you very much! 

After a lot of trial and error with the software I found out that I could get information on line 8 of form 8606 if I said my basis at the end of 2020 was 6000. Doing this makes it seem like I made the contribution on 12/31/2020 and then converted it on 1/1/2021. This has the effect of making the taxable amount 0 since I have the non-deductible basis in there to convert. I am curious as to your thoughts on this method as it seems to produce the desired results and in some sense is just reiterating what I did on my 2020 tax return. I thought of this because I didn't know if not putting the 1099-R on my 2021 return would be a red flag for the IRS. 

But ultimately I think what you mentioned is right, the 1099-R was essentially reported already in 2020 and my custodian just reporting to the IRS that I did what I said I did on my 2020 return. 

[DanaB27]

Yes, that was what I was referring to in my instructions above that you need to enter your $6,000 nondeductible contribution for 2020 (basis) during the 2021 interview when TurboTax asks about your basis from 2020 and prior years. This $6,000 basis should on line 1, line 4 and line 14 of your 2020 Form 8606. If not, then you might have to amend your 2020 tax return to correct your Form 8606.

When you enter the $6,000 basis during the interview as the basis from 2020 and prior years then the basis will be entered on line 2 of your 2021 Form 8606 and TurboTax either uses lines 6-12 of Form 8606 or the IRS Worksheet 1-1. Figuring the Taxable Part of Your IRA Distribution to calculate the nontaxable part.

If you didn’t have any earnings and converted $6,000 then your conversion will not be taxable and line 4b of Form 1040 will show $0.

No, your 2021 Form 1099-R should not be reported on your 2020 return for a 2021 conversion. Your conversion happened in 2021 and therefore belongs on the 2021 tax return. Generally, the only 2021 Forms 1099-R that must go on the 2020 tax return are if they have code R or code P in box 7.

@ThomasTheSecond