Roth and backdoor roth deadline

[anbuitachi]

Hi, this is a big confusion to me but I read roth contribution deadline is filing deadline (4/15) but backdoor roth deadline is end of the year 12/31? Is this correct. Fidelity told me backdoor roth is also 4/15 but I'm getting mixed info elsewhere.

I got married and no longer qualify for roth even though I did roth in 2021. Im wondering if it is too late to convert the roth to traditional, and backdoor it again to have it count towards 2021.. Thanks

[fanfare]

To recharacterize a contribution, you must generally
have the contribution transferred from the first IRA (the
one to which it was made) to the second IRA in a
trustee-to-trustee transfer. If the transfer is made by the
due date (including extensions) for your tax return for the
tax year for which the contribution was made, you can
elect to treat the contribution as having been originally
made to the second IRA instead of to the first IRA.

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Then (important) make the non-deductible election on your tax return for that amount now in the second IRA (Traditional).

[fanfare]

CAUTION: Backdoor Roth conversion only works if you currently have no value in Traditional IRAs.

[DanaB27]

You have until April 18th, 2022 to make contributions for 2021.

You have to recharacterize a 2021 contribution by the due date for filing your 2021 tax return (including extensions).

You can convert a traditional IRA to Roth IRA anytime.

A backdoor Roth has two parts the contribution and the conversion. It is best to do it in one year to avoid gains but can be done over two years too (contribute in 2021 and convert in 2022).

If you decide to recharacterize your Roth contribution then you will enter the recharacterization when you enter the contribution to the Roth IRA:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount 
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (since you are thinking about doing a backdoor Roth. 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)

You will get Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2021 and this belongs on the 2021 return. But a 1099-R with code R will do nothing to your return. You can only report it as mentioned above. Therefore, you can ignore the 1099-R with code R when you get it in 2023. 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.

You will have a basis on line 14 of your 2021 Form 8606 that you will enter next year on your 2022 tax return if you convert the traditional IRA to Roth IRA in 2022.

[Katerinablondy]

Thanks for this post. I am just about ready to file but we are confused on how to report it. We contributed before April 2021 for 2020, and now we are getting double reporting for 2021.  How do we indicate that half of the contribution is for 2020?  

[dmertz]

Any Roth conversion is reportable on the tax return for the year in which the distribution being converted to Roth takes place.  That's why the deadline do do a Roth conversion is the end of the calendar year if you want it to be reportable on that year's tax return.  This is entirely independent of the deadline for making an IRA contribution.  They are two separate transactions.  The term "backdoor Roth" simply confuses people into thinking that they are some sort of combined transaction.

[DanaB27]

On your 2020 return, you will have to report the nondeductible contribution and then you can enter this basis (nondeductible contribution) on your 2021 return. Please see How do I amend my 2020 return? and the steps below.

If you made a nondeductible contribution for 2021 you will enter it on your 2021 return.

To enter the nondeductible contribution to the traditional IRA:

1. Login to your TurboTax Account 
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” if you had a nondeductible contributions before this tax year.
9. If you had a basis in the Traditional IRA before then enter the amount from your 2020 Form 8606 line 14.
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 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 “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Your 1099-R Entries" screen click "continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@Katerinablondy 

[anbuitachi]

So it sounds like I can backdoor still for 2021 but it sounds super complicated. The 6k I put into Roth is now 4.5k. I lost 1.5k! If I convert 4.5k to traditional and then convert it to Roth. Sounds okay?

[Katerinablondy]

This gives us the message that we contributed too much and a penalty is assessed. 

[Opus 17]

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@Katerinablondy wrote:

Thanks for this post. I am just about ready to file but we are confused on how to report it. We contributed before April 2021 for 2020, and now we are getting double reporting for 2021.  How do we indicate that half of the contribution is for 2020?  

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Contributions made up until 4/15 can be backdated to the previous year.

Conversions and rollovers happen on the day they happen and can't be retroactive.  

However, this makes little difference.  If you make a non-deductible traditional IRA contribution and roll it over to a Roth IRA (the "backdoor Roth") it doesn't have to happen in the same tax year.  You can make a contribution in 2022 that is retroactive to 2021, and then convert it in 2022, and it won't change your taxes or cause problems.  The contribution will be reported on your 2021 tax return and the conversion in 2022.

Just beware, that a backdoor Roth doesn't work if you have a deductible balance in any traditional IRA (all IRA account balances are added together when you do the conversion).  If your only balance is non-deductible, it will work.  If you have a IRA that was funded by deductible contributions, you have to convert it (and pay tax) all at the same time. 

[Katerinablondy]

Thank you, Opus. I understand the mechanism, we are just struggling with the logistics of turbo tax. 

[Opus 17]

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@Katerinablondy wrote:

Thanks for this post. I am just about ready to file but we are confused on how to report it. We contributed before April 2021 for 2020, and now we are getting double reporting for 2021.  How do we indicate that half of the contribution is for 2020?  

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Only tell turbotax about contributions made in 2021 or 2022 for tax year 2021.  Don't tell Turbotax about contributions made in 2021 for tax year 2020, since they were already reported on your 2020 return.  (If you made contributions in 2021 for tax year 2020 and did not report them on your 2020 return, you have to file an amended 2020 return.)

[DanaB27]

Yes, you can recharacterize the 2021 Roth contribution as a traditional IRA contribution and then convert it in 2022. If you still have a loss when you convert it in 2022 you will have a basis carryover to 2023. Please check your 2022 Form 8606 line 14 when you file your 2022 tax return next year. 

@ anbuitachi

@ Katerinablondy Did you enter only a $6,000 traditional IRA contribution on your 2021 tax return as Opus 17 mentions? Did you have enough taxable compensation (earned income like wages, self-employment)? The funds moved to the Roth IRA are not a Roth contribution, do not enter them as contributions in the IRA contribution interview.

[Katerinablondy]

Got it! Thank you very much! 

[anbuitachi]

I see. So this means later down the line if i have lets say 30000$ in traditional IRA. I can roll all of it to roth at once?