Roth and backdoor roth deadline

Forum|Forum|4 years ago
March 9, 2022
2 replies
4 views

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

Level 15

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elect to treat the contribution as having been originally
made to the second IRA instead of to the first IRA.

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

fanfare

Level 15

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

DanaB27

Level 15

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:

Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “Roth IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution
Enter the Roth contribution amount
Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
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.
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.

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Katerinablondy

Level 2

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?

anbuitachiAuthor

Level 2

@anbuitachi wrote:

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?

A rollover from a traditional IRA to a Roth IRA is also called a conversion. You can do this at any time, with all or part of your IRA balance. The conversion will be reported on a 1099-R as of the date it actually happens, conversions can't be back-dated like contributions sometimes can be.

If the original contributions to the traditional IRA were all tax-deductible when made, then the Roth conversion amount (contributions plus earnings) is subject to regular income tax. If all the original contributions to the traditional IRA were non-deductible when made (and documented on form 8606 as part of your tax return) then the Roth conversion (contributions plus earnings) is non-taxable.

Where you get into trouble with a "backdoor" Roth conversion is if part of your traditional IRA contributions were tax-deductible and part were non-deductible. And all your IRAs are counted together for this purpose, meaning that if you had a traditional IRA with Merrill Lynch that was deductible, and a traditional IRA with Fidelity that was made with non-deductible contributions, the IRS will still consider that you have one combined IRA balance that is partly deductible and partly non-deductible. I don't know if that is your question here, so I won't go into detail, but we can explain if you want more information.

Thanks. Sorry some of the replies are bit difficult for me to understand since I am not well versed in tax stuff and certainly not with Roth related.

What I meant is if all my traditional IRA is non tax deductible. Will I be able to convert all of that to Roth even if its over 6000, or am I still limited to the 6000 a year. So If lets say in 2021 and 2022 I contribute 6000 each to traditional IRA for total of 12k. In 2022 can I then convert all 12k to Roth? Or can I only convert 6000 per year so I would have to do it in multiple years if I want to convert it all