What is 8606-T Explanation Stmt

[SMS123]

Hi there. Need some help..

I did a backdoor Roth IRA in 2021 and also made conversion of Trad IRA to Roth IRA. I got 1099-R for both and uploaded to TT desktop version. Its asking for "8606-T Explanation Stmt" - Return of an IRA Contribution Before the Due Date of the Tax Return. What should I enter? Any suggest would be appreciated. Thanks

[AnnetteB6]

Somewhere along the way, you answered a question stating that you returned an IRA contribution before the due date of the return.  This question would have been in the Traditional IRA contribution section of your return.  

You should revisit that section of your return and pay close attention to the questions.  Neither of the situations you mentioned in your question would have required you to answer 'yes' so that you would be required to include a statement with your return.    

Keep in mind that a back door Roth IRA conversion is reported in two steps.  First, you must enter the non-deductible Traditional IRA contribution (this is where the questions would have come up requiring a statement to be added to your return).  Then, you enter Form 1099-R reporting the distribution from that Traditional IRA with follow-up questions in that section to indicate that the distribution was converted to a Roth IRA.

For further details, take a look at the following TurboTax help article:

How do I enter a backdoor Roth IRA conversion?

[SMS123]

Thanks for the reply. I just reviewed the 1099-R and found that "7. Distribution codes" it showing as "1, 8" with IRA/SEP/SIMPLE box checked. And 2a. Taxable amount is $0.00

I believe this is the issue..I did an error in 2021 contribution, I contributed to the Year 2020(in Feb,21) by mistake initially but couple weeks later I found out that error and requested them to move funds from Year 2020 to 2021(I had to submit the form for removal of excess funds). Not sure if it's causing any issues...I did not withdraw contributions but just requested to move from 2020 to 2021..

Could you please advise what should I put in 8606-T Explanation? I tried to delete it from "forms" but its getting added back again. Please advise. Thanks!

[DanaB27]

I assume you have two 1099-R, one for the conversion to Roth IRA and one for "moving the contribution to the correct year".

Just enter both 1099-Rs and provide as an explanation "Return of contribution" when asked. The second 1099-R with codes 1 and 8 won't have an effect on your return since box 2a $0.00.

[SMS123]

Yes I did receive two 1099-Rs.

#1. For Roth conversion with some Taxable $$$ on 2a and 7.Distribution Code "2".

#2. For Excess contribution/Backdoor Roth with 7. Distribution Code "1,8".

I uploaded both 1099-Rs and my taxable income increased with $$$ of  #1. 1099-R which is expected.

It has two explanations for 8606-T, I've answered as added as below(Dates are not accurate as I contributed multiple times, so took only 1st date)

Explanation Stmt#1

Form/Line: Form 1040/1040-SR Worksheet  4a (1040/1040-SR)

Explanation of : Return of an IRA Contribution Before the Due Date of the Tax Return

Return of contribution

Explanation Stmt#2

Form/Line: Form 1040/1040-SR                  4a (1040/1040-SR)

Explanation of : Recharacterization Explanation

Date of the Original Contribution: 02/01/2021

Date of the Recharacterization: 04/16/2021

The Amount Recharacterized: $6000.

The Amount Transferred (Recharacterization plus earnings or losses): $6000

Reason for the Recharacterization: Contributed as Non-deductible IRA and then moved to Roth IRA

Can you please advise if this looks good? Many thanks!

@DanaB27 @AnnetteB6 

[DanaB27]

Please be aware that you do not enter the Roth conversion as a recharacterization. You will enter the nondeductible traditional IRA contribution under Deductions & Credits and enter the 1099-R that you received for the conversion to the Roth IRA in the retirement section.

To verify, you contributed to the traditional IRA in 2021 and then moved the funds into the Roth IRA in 2021 (conversion).

Please review the steps below to report a backdoor Roth.

To enter the nondeductible contribution to the traditional IRA:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contributions before this tax year.
9. If you had a basis in the Traditional IRA before then enter the amount.
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a screen saying $0 is deductible).

To enter the 1099-R distribution/conversion: 

1. Click on "Search" on the top right and type “1099-R”
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Your 1099-R Entries" screen click "continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis and value

@SMS123

[SMS123]

Thanks for the steps..a followup question..

This is the first time I made non-deductible contribution and I never filed 8606...What should be my "basis in the Traditional IRA"? Should I summup all my traditional IRAs as of 12/31/2021 or it's ZERO?

@DanaB27 

[DanaB27]

If this is your first time making a nondeductible contribution to a traditional IRA then you do not have a prior year basis and will enter $0 as the basis.

If you contribute and convert in the same year your prior year basis will always be $0 (assuming that this is your only traditional, SEP, SIMPLE IRA and it is empty at the end of the year).

[SMS123]

Got it, thank you!!

Yes this is my first year of non-deductible contribution. 

Actually I have two Trad IRA accounts. 

1st account(Vanguard) I have been contributing to this as deductible contribution until 2020. It has all my pre-tax $$$.I didn't touch them..

For 2021, I opened a new Trad IRA account in TDAmeritrade and converted all of them to Roth.

Should I enter basis as $0 in TurboTax?

[DanaB27]

Yes, your prior-year basis will be $0.

Please be aware, that you will have to enter the total value of all traditional, SEP, and SIMPLE IRAs on December 31, 2021 into TurboTax (in your case value of Vanguard plus value of TDAmeritrade). Therefore, each distribution/conversion will have a taxable and nontaxable part.

For a backdoor Roth contribution to work successfully:

• Do not have any existing IRAs that have pre-tax funds. If you do have pre-tax funds or earnings in the IRA, then each distribution/ conversion will be partly taxable.
• You must report the nondeductible traditional IRA contributions on Form 8606.
• You convert the funds shortly after you made the nondeductible contributions to avoid having taxable earnings.
• Your traditional IRA has a value of $0 at the end of the year.

[SMS123]

Understand. Yes I entered total sum of Traditional IRA balance as of 12/31/2021. Also I entered backdoor IRA non-deductible values as suggested in above links.. But I dont see any increase in taxable income or Federal/State Tax refund/owe.. Do you think am I missing anything here?

Regarding to keep "Your traditional IRA has a value of $0 at the end of the year", is it possible if we have bulk amounts in Trad IRA as I may be taxed if I plan to convert all before backdoor Roth?

Any suggestins? Appreciate your time for the reply and assist..Thanks

[RobertB4444]

You're not missing anything.  TurboTax will inform you if any of the conversion is taxable.

If you convert everything to a Roth you'll be taxed on all of it when you do and you definitely would avoid any future taxable conversions.

[SMS123]

Thank you everyone. Appreciate your time!

@RobertB4444 @DanaB27 @AnnetteB6