Timing of Backdoor Roth conversion

[Getemdun]

Hello,

I plan on contributing 7K to 2024 traditional IRA , and 7K to 2025 traditional IRA, both on 4.9.25 (still before filing deadline, so it is possible).

But I would like to convert both years traditional contributions to Roth (through the backdoor process). but because of my late contribution, and the time it takes to make the cash available to withdraw to make the roth conversion, I am sure the roth conversion can happen only after the filing deadline. I am high income earner, and I have no other traditional IRA contributions for either years.

Now my question is this:

1. If the roth conversion happens after the filing deadline, would it all together fall as 14K roth conversion for the year 2025, and 1099-R for 2025 would reflect that, and that wouldn't be a problem if I pay the tax due because of the conversion, when I file taxes by 2026 deadline?

2. And for filing 2025 taxes (which I am in the process of doing right now), I would just declare that I made 7K contribution to 2024 Traditional IRA, is that right?

3. The other question is, before the roth conversion can happen, the traditional IRA is going to gather some interest, making the amount 7K plus for each year. Now do I convert only 7K out of that, for each year or should I convert the whole amount including the interest gained. I would like to convert all if possible. 

Thanks for your advice on this matter.

[Getemdun]

Adding to my previous questions in the prior post, in my case, is it just better to file for an extension of the filing deadline, so that I can have extra time to complete the 2024 Traditional IRA contribution to Roth (backdoor) conversion, and then file my taxes?

Thanks again.

[AnnetteB6]

Go ahead and make your non-deductible $7000 Traditional IRA contribution for 2024 and be sure to report it on your tax return.  That is the first step for the backdoor Roth IRA conversion.

Also, make your $7000 non-deductible Traditional IRA contribution for 2025.  This will be reported on your 2025 tax return.  

Then, when you do convert the $14,000 plus earnings to a Roth IRA later in 2025, you will receive a Form 1099-R for 2025 reporting this distribution.  The Form 1099-R will be included on your 2025 tax return where you will indicate that the money was converted to a Roth IRA.  The only portion of the distribution from the Traditional IRA that will be taxable is the earnings that were added to the account during the time between the contributions and the conversion to the Roth IRA.  

As long as you can get the 2024 Traditional IRA contribution made before the April 15th deadline and report it on your tax return, there is no need to file an extension so that the rest of the process can be completed.  There is no rush to make the 2025 contribution or to do the conversion, other than to reduce the possible earnings in the Traditional IRA account before it is converted.

@Getemdun

[dmertz]

Roth conversions are taxable on the tax return for the year in which the conversion occurs.  The 2024 filing deadline only has relevance to making your 2024 IRA contribution.

Requesting a filing extension changes nothing with regard to these transactions.  The deadline for making your 2024 traditional IRA contribution is April 15, 2025 whether or not you request a filing extension.

The traditional IRA contribution made fore 2024 will go on your 2024 tax return.  Being nondeductible, it will appear on 2024 Form 8606 Part I.

The amount on line 14 will carry forward to line 2 of your 2025 Form 8606 on which your 2025 traditional IRA contribution will be reported as nondeductible.

The Roth conversion will be reported on your 2025 tax return and will appear on Parts I and II of your 2025 Form 1099-R.

1.  The deadline for filing your 2024 tax return is irrelevant to the timing of your Roth conversion.

2.  Right now you are filing your 2024 tax return, not your 2025 tax return.  As mentioned above, the contribution for 2024 is the only transaction of these that will go on your 2024 tax return

3.  You should convert everything in your traditional IRA such that you have no funds in a traditional IRA at the end of 2025.  Any slight gains will be taxable on your 2025 tax return.

[Getemdun]

Thank you so much AnnetteB6 for your advice in simple easy language, and clear instructions.

I use Turbotax, and from the past I remember that it would ask me for the balance amount on the traditional IRA account on the 31st of December of the tax year. I would look at the year end statement from the broker and get that balance amount.

Now, in my case, when I make the 7K traditional contribution for 2024 today (on 4.10.25), should I enter '0' or '7000' for the 'balance amount on traditional IRA account on 31st Dec 2024'? Or, is this question not even going to come up?

Thanks again for all your help. I so appreciate this and am thankful for this forum.

[Getemdun]

Thank you so much Dmertz, I really appreciate your time and advice. And thanks for clarifying that I am filing my 2024 tax return and not my 2025 tax return now. Silly mistake on my apart. My apologies. And thanks for making it clear that filing an extension is not going to be of any help.

And thanks also for clarifying that it is best to convert everything from trad (incl earnings) to Roth. One question comes up in this regard. I remember speaking to one of the advisors from the broker in the past, and he said I should only convert 7K and leave the earnings in the traditional account. I understood it then as only 7K is the limit allowed that I should convert to Roth. Have I been misguided or maybe I did not understand his advice properly?' Based on that, (again in the past) I converted quickly (as we all should when going that route), and a small amount remains on my traditional IRA account, which I declare on Turbotax.

Thanks again for your help.

[Getemdun]

Hello again,

If I go this route, and the 14K plus earnings get converted to Roth IRA later this year, will it not count as if I made over-the-limit contribution to my 2025 Roth IRA, and will get charged a penalty for the same, when I file my 2025 taxes next year?

Thanks again.

[dmertz]

A Roth conversion is not an ordinary contribution.  Only ordinary contributions are subject to the contribution limit.  The only ordinary contributions that you will have made will be $7,000 for 2023 and $7,000 for 2024, neither exceeding the $7,000 contribution limit.  (Of course you must also have sufficient compensation each of these years to support a $7,000 contribution, otherwise you will have an excess contribution.)

[Getemdun]

Thank you Dmertz for your time and clarification. Much appreciate it.