On April 28th 2020, I did my first ever backdoor Roth IRA with one of the investment company. I contributed $6k towards 2019 and another $6k towards 2020, a total of $12k that was received in the traditional IRA and same day was fully converted to Roth IRA. I got 1099-R this year with $12k. I read all the posts but could not find any direction on how to enter both amount for both years. Please hlep!
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The 2019 contribution must be entered on a 2019 tax return and made nondeductible in the IRA contribution interview. Likewise for 2020 contribution. That will produce a 2019 and 2020 8606 form with the contribution online 1.
The "Backdoor Roth" does not exist in tax law. It is a procedure used by some to take advantage of a quirk in tax law that allows making a non-deductible contribution to a Traditional IRA when one cannot contribute to a Roth IRA, and the immediately converting the Traditional IRA to a Roth IRA, thereby getting the money into the Roth via "backdoor" tax free.
That "procedure" can only work of all these requirements are met:
1) No Traditional IRA account whatsoever can exist (that includes any SEP or SIMPLE IRA accounts) at the start. If existing IRA's contain any before-tax money or earnings then it will be partly taxable.
2) The Tradition IRA contributions must be reported on a 8606 form as non-deductible.
3) The conversion to a ROTH must be shortly after the contribution to avoid taxable gains.
4) The entire Traditional IRA value must be zero that the end of the year of conversion.
Otherwise the conversion will be partly taxable.
First you must enter your Traditional IRA contributions (if there were 2020 contributions).
IRA contribution
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),,
Retirement & Investments,
Traditional & Roth IRA contribution.
Be SURE to answer the follow up that the are choosing to make this contribution NON-DEDUCTIBLE - if that screen comes up. (DO NOT say that you moved (recharacterized) the money to a Roth) – this is a conversion, not a recharactorazition.
Then enter the 1099-R that shows the distribution.
Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),,
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).
Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.
When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2020. (Usually zero unless you also made a 2019 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).
Enter the 2020 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.
[If you had any other Traditional IRA at the end of 2020, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]
The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.
Also see this TurboTax FAQ:
https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion
The form 1099-R for 2019 probably has code "P" in box 7, which means the distribution belongs to 2019. If you did not report the distribution on your 2019 tax return, you should amend it to report the distribution, by following these instructions for the 2020 contribution and distribution:
Enter the form 1099-R as follows:
@ThomasM125 wrote:
The form 1099-R for 2019 probably has code "P" in box 7,
A code P is a return of contribution that was not mentioned in the question.
The only 1099-R would be for the conversion. The 2019 and 2020 contributions are entered in the IRA contribution interview for 2019 and 2020 respectively. The contributions would be confirmed by the financial institution with a 5498 form.
Thank you. I went back and looked at my tax filing and it appears, I missed reporting the 2019 non-deductible contribution in my 2019 tax return so I have to go and fix that first by amending the tax return.
@Shishir wrote:
Thank you. I went back and looked at my tax filing and it appears, I missed reporting the 2019 non-deductible contribution in my 2019 tax return so I have to go and fix that first by amending the tax return.
Yes. Unless you report the 2019 non-deductible contribution on a 2019 8606 form you cannot use it to offset the tax on the conversion - it would be forfeited.
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