I have a "new to me" tax situation for 2023 that I could use some assistance with how to enter in TurboTax. The short version is that last year (for 2022 tax year) we fell into the phase out income range for Roth IRA contributions. We removed all excess (with some losses), and backdoored some back into a Roth IRA, and some into a taxable investment account. In addition to that, I also have an old Traditional IRA (deductible) from a former employer. Now I'm trying to figure out how to enter all of this for our 2023 tax return.
The detailed version...
2021 (and prior):
2022:
2023:
2024:
For anyone else who has been in this situation before, is there anything else I'm missing? Any other details you need from me? I would appreciate any assistance you can offer. Thank you!
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The 2023 Form 1099-R with codes P and J belong on the 2022 tax return but only earnings (listed in box 2a) are taxable. You had a loss and therefore you do not have any taxable income to report on your 2022 return and you do not need to amend your 2022 return.
You will get a 2024 Form 1099-R in 2025 with codes P and J for the withdrawal of the 2023 excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:
To create a Form 1099-R in your 2023 return please follow the steps below:
Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.
Also note, if you are in the phaseout range then reporting the taxable earnings from the excess will increase your MAGI again and can create a new excess. Therefore, it might be beneficial to remove a little extra to avoid this issue.
Please see How do I enter a backdoor Roth IRA conversion? for detailed instruction. TurboTax will automatically handle the Pro-rata calculation. You can see the calculations on Form 8606. If you have a star next to line 13 then you can see the calculations on the Taxable IRA Distribution Worksheet.
The 2023 Form 1099-R with codes P and J belong on the 2022 tax return but only earnings (listed in box 2a) are taxable. You had a loss and therefore you do not have any taxable income to report on your 2022 return and you do not need to amend your 2022 return.
You will get a 2024 Form 1099-R in 2025 with codes P and J for the withdrawal of the 2023 excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:
To create a Form 1099-R in your 2023 return please follow the steps below:
Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.
Also note, if you are in the phaseout range then reporting the taxable earnings from the excess will increase your MAGI again and can create a new excess. Therefore, it might be beneficial to remove a little extra to avoid this issue.
Please see How do I enter a backdoor Roth IRA conversion? for detailed instruction. TurboTax will automatically handle the Pro-rata calculation. You can see the calculations on Form 8606. If you have a star next to line 13 then you can see the calculations on the Taxable IRA Distribution Worksheet.
Thank you for all the detail @DanaB27 !
Though this got me thinking and wondering if I messed up my tax return last year for 2022. Looking at just my wife's IRA:
As far as I understand, the conversion from 4/14/2023 should be included on the tax return for the calendar year it occurred (i.e. 2023, not 2022). The excess return from 3/17/2023 generated a 1099-R form this year to amend the 2022 tax return, but since there were losses there is really nothing to amend. Where or when was I supposed to include the nondeductible Traditional IRA contribution from 3/31/2023 on a tax return? My return from 2022 doesn't have Form 8606, so I'm guessing it wasn't included there, but should it have been? I'm wondering if I entered the wrong data somewhere and just assumed it was OK since it was supposed to be nondeductible and not impacting the tax return. If it should have been on the 2022 return, can I amend that now?
Yes, the nondeductible traditional IRA contribution from 3/31/2023 for 2022 has to be reported the 2022 Form 8606. You should have a basis of $4,510 on lines 1, 3, and 14. The basis from line 14 has to be entered on your 2023 tax return when TurboTax asks if you tracked nondeductible contributions in prior years.
"If this form isn't included in your 2022 return, you'll need to fill out a 2022 Form 8606 to record your nondeductible basis for conversion, and mail this form to your designated IRS office. Don’t amend your 2022 return to record your basis. (Note: If you're required to file Form 8606 to report a nondeductible contribution to a traditional IRA, but don’t do so, you’ll be subject to a $50 penalty. This penalty can be waived if you can show reasonable cause.)" (FAQ)
Please verify. that you didn't deduct the traditional IRA contribution on your 2022 tax return (Schedule 1 line 20). If you did then you will have to amend your 2022 tax return.
Thank you again @DanaB27 ! This has been very helpful and very detailed. I believe I have everything sorted out now and ready to go.
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