Why am I being taxed on a backdoor roth done in early 2024 for the 2023 tax year?

[elizabethelmoreesq]

In March 2024, I contributed $ to a traditional IRA fo the 2023 tax year and immediately rolled it over to a roth IRA. I have already paid taxes on this money. But now it appears I'm getting taxed for the traditional IRA distribution ($6500) on my 2024 taxes. I'm pretty sure that's not supposed to happen, but I'm at a loss for what to do! I'd be really grateful for any suggestions (speak to me like I suck at taxes, please).

[fanfare]

Check your 2023 tax return for a Form 8606 showing  $.

If it is missing or incorrect, that is the source of your problem.

If it is there but you did not import the data to 2024 tax return, that is the source of your problem.

@elizabethelmoreesq 

[fanfare]

If you took a deduction of $ on your 2023 tax return.

then your Roth conversion of $ will be taxed on your 2024 tax return. 

the two essentially cancel out depending on your tax rate in both years.

@elizabethelmoreesq 

[elizabethelmoreesq]

First of all, thank you for taking the time to respond to a stranger - really kind of you and really appreciated.

Second, there's no form 8606 in my 2023 return. So I guess that's my problem. Do I need to go file an amended return? Aaaagh.

[elizabethelmoreesq]

But another confusion. I contributed after-tax money to the traditional IRA, so I thought I wasn't supposed to be taxed at all? 

Or is it that I received an undeserved tax break in 2023 (or should have, if I'd filed the right form, sigh) and now it's being cancelled out by taxing me? 

I'm so confused. I swear I'm a smart person in real life. 

[KeshaH]

Did you add your 2023 contribution to your 2023 return at all? I see above that the Form 8606 wasn't included - do you see a deduction for the contribution on line 20 of Schedule 1 from your 2023 tax return?

If there's an amount on that line on the 2023 tax return, then the contribution was not made with after-tax money so the full amount will be taxed on your 2024 return.

If there's no amount on that line, then your 2023 contribution was never reported on your 2023 return and that's why you don't have an 8606 attached. 

To avoid the tax on the distribution, you'll need to tell TurboTax that you made nondeductible contributions to your traditional IRA. This screen comes up after you enter all of your Forms 1099-R, and you will see the distributions added to income as they're entered. Once you enter the information about the nondeductible contributions your tax liability will be adjusted again.

[fanfare]

2023 Schedule 1 Line 20 is the key. reply back with the amount shown there and i'll post corrective action 

@elizabethelmoreesq 

[elizabethelmoreesq]

Amount shown: 0.

Thank you again. I will pay it forward by doing something nice for a random stranger today!

[fanfare]

The proper way to file Form 8606 is attached to Form 1040-X.
Do you have the correct taxable amount on 2023 Form 1040 Line 4b and did not take a deduction? (Schedule 1 Line 20)?

Since Line 20 is zero, only Form 8606 has to be attached.
After you e-File,

get Form 1040-X from IRS website and mail it in with your 2023 Form 8606, which you can also get in fillable PDF under "prior year" forms.

Populate 8606 Lines  1, 3, 14 with your $ amount.

Note: when you are not changing any dollar amounts on your amending 1040-X, you can leave all the lines 1-23 EMPTY.
Write "2023" in the topmost box on 1040-X.

Part II explanation: "didn't include Form 8606 with e-File. Making contribution non-deductible".

Done this way, you sign 1040-X, not 8606.
Do not include your old 1040 nor your revised 1040 because they are identical.

==

use the data on your 2023 Form 8606, not yet on its way to IRS,  to complete your 2024 Form 8606 with TurboTax.

You will end up with no tax.

now you can mail the 2023 amendment.

@elizabethelmoreesq 

[elizabethelmoreesq]

Hi! Very sorry for my delayed response. For some reason I didn't get a notification that I had received further responses. I very much appreciate this input.

I have rechecked, and on my 2023 return, "$726" is in entered on Line 20. According to Schedule 3, that comes from a foreign tax credit and child care expenses. There is no Form 8606. Should I amend my 2023 tax return to include it?

I have marked the "non deductible contributions box" in my 2024 return when reporting the 1099-R, but it makes a significant difference to my tax liability whether I report the amount as $1 or $6500, so I am definitely still being taxed on it.  

I'd be grateful (so grateful) for any further suggestion you have!

[elizabethelmoreesq]

I am so sorry for the delayed response! I didn't get a notification from turbotax, so I just came back here to check and saw there was a further response.

First of all, I was wrong about Line 20 (not sure how I missed that). The amount "$726" is entered. Schedule 3 tells me that is from a foreign tax credit and child care expenses. Nothing else is entered into the form.  There is no Form 8606.

There is also no amount entered in Line 4(a) or (b). Should there be?  

If I need to file an amended 2023 return to include Form 8606, can I simply use Turbo Tax to do it, rather than sending things by mail? I live out of the country, so anything by mail is a major pain. 

One more thing. I intend to do the backdoor roth again this year. So I need to report that on Form 8606 this year, correct?

Thank you again!

[elizabethelmoreesq]

Now I recall why I didn't enter anything in my 2023 taxes. I wasn't sure if my MAGI would fall within the required range to do a normal Roth contribution (my income varies wildly year to year, and I have a foreign earned income exclusion that knocks out ~$125k of it, so some years I'm too low and other years I've been too high). 

So I had to wait until I filed my 2023 taxes to see what my MAGI was to know whether to do a Roth or backdoor Roth. I made the contribution right after I filed my taxes.

I'm in a similar situation this year - I don't know if I can do a regular roth or need to do a backdoor roth. Is there any way to find out what Turbotax has calculated as my MAGI before filing my taxes?

[DaveF1006]

 Yes, there's a way to determine your MAGI.  You can enter a Roth contribution on your return ‌and TurboTax will calculate your MAGI and let you know if you're eligible. Usually it'll display the MAGI amount on the screen. If this doesn't display, there's a more cumbersome approach.

1. Check Your AGI: Open your return in TurboTax and navigate to the "Tax Summary" section. Your Adjusted Gross Income (AGI) will be listed there.
2. Calculate MAGI: Use your AGI and add back specific deductions, such as:

• Foreign earned income exclusion (which applies to you),
• Student loan interest,
• Half of self-employment tax,
• IRA contributions, and others.

If you're unsure about the deductions to add back, t IRS Publication 590-A provides a worksheet for calculating MAGI for Roth IRA purposes.

IRS Publication 590-A