Traditional IRA investment from 2024 to Roth conversion (Backdoor roth) before April 15 2025

[nishat]

Hello ,  I have invested $7000 in my wife's traditional IRA in 2024. But I found out that due to income limit my investment in traditional IRA is not tax deductible. My wife doesn't have retirement plan from her work but I do. 

Since that $7000 is not deductible investment done in 2024, can I convert it to Roth IRA as a backdoor Roth conversion before April 15 , 2025 ? I have $6990 uninvested cash in my account from those $7000. Is it okay is i only convert $6990 to Roth IRA before 15 April 2025?

If I can, what should I enter in 2024's tax return?  I will get 1099-R next year for this conversion. What should I do for my 2025 tax return to not pay tax again on that $7000. 

I have not filed my 2024 tax, yet and waiting to get this answer from turbotax. I reached out few live agent but didn't got clear answer. 

Please let me know. 

[AnnetteB6]

The tax deadline has no bearing on whether you want to convert the non-deductible Traditional IRA to a Roth IRA.  

For 2024, you have already made the Traditional IRA contribution, it is just a non-deductible one.  You need to be sure to report that in your 2024 tax return so that Form 8606 will be included and the basis of the Traditional IRA will be reported.  

Then, if you do decide to convert the Traditional IRA to a Roth IRA the basis will be part of the calculation to determine whether the conversion will be taxable or not.  If your wife has other Traditional IRAs with pre-tax money, then those funds will be part of the calculation to determine whether any conversion is taxable or not.

If you decide to convert the Traditional IRA to a Roth IRA, you can convert any amount you wish.  There is no limit for conversions because they do not count as a contribution to the Roth IRA.  

If a conversion is done, you will receive a Form 1099-R reporting the distribution from the Traditional IRA.  When this form is entered into your tax return you will indicate that the funds were converted to a Roth IRA and the amount that may be taxable will be calculated.  Conversions are reported on the tax return for the year that the conversion takes place.  They are not designated to be for a particular tax year like IRA contributions are.

[nishat]

Thanks for your response. 

So in my case, Since my $7000 contribution is not-deductible for 2024. I will file it in 8608 this year. 

For my next year filing, Since I will be converting that non-deductible IRA contribution of 2024 to Roth in 2025, do i still need to pay tax on my 1099-R amount ?

How should I enter 1099-R in 2025 return to avoid paying tax again on my non-deductible investment ? Will 2024's 8608 will help me to avoid paying tax on that 1099-R in 2025 ?

[AnnetteB6]

Yes, the 2024 Form 8606 will help you avoid paying tax on the conversion that will take place in 2025.  

Since the contribution is non-deductible, as long as you do not have other Traditional IRA accounts that contain pre-tax money, then when you convert the Traditional IRA to a Roth IRA it will be non-taxable except for any earnings that may have accrued in the account before it it converted.

On your 2025 tax return, you will enter the Form 1099-R and answer the follow-up questions to indicate that the money was converted to a Roth IRA.  Then, the non-deductible contribution amount will be taken into account so that the conversion is not taxable.

@nishat