1099-R's and Back Door Conversions

[MarkM221]

Wanting to confirm I understand the help articles posted related to back door conversions:  

I contributed to a ROTH IRA in 2020 (for 2020). 

Then in March of 2021, I had to do a back door conversion of those contributions.

As I prepare my 2021 tax return, do I only enter data from my 1099-R with a "2" in Box 7 and ignore the 1099-R with an "R" in Box 7 until I complete my 2022 tax return in 2023?

This is how I think I understand the 2-step process in the help articles posted.  Is this correct?

Thank you.

[macuser_22 · Accepted solution]

---

@MarkM221 wrote:

Wanting to confirm I understand the help articles posted related to back door conversions:  

I contributed to a ROTH IRA in 2020 (for 2020). 

Then in March of 2021, I had to do a back door conversion of those contributions.

As I prepare my 2021 tax return, do I only enter data from my 1099-R with a "2" in Box 7 and ignore the 1099-R with an "R" in Box 7 until I complete my 2022 tax return in 2023?

This is how I think I understand the 2-step process in the help articles posted.  Is this correct?

Thank you.

---

A Backdoor conversion" is contributing non-deductible contributions to a *Traditional* IRA and converting that to a Roth.

If you contributed directly to a Roth then there is no conversion.

Or are you saying that you then recharactorize the Roth to a Traditional IRA and then converted that?

If that is the case then the 1099-R code R goes on your 2020 (or amended 2020) tax return the entering the code R itself will do nothing.

A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2020 return. It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2020 tax return.

The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

The proper way to report the recharacterization and earnings which is to enter the 2021 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount The amount of the original Roth contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

That is the only way to prepare and attach the proper explanation statement for a code R 1099-R.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

Since the after-tax Roth contribution is now a Traditional IRA contribution it can be either a before-tax deduction if your MAGI allows a deduction which might result in an additional 2020 refund, or it will be an after-tax contribution reported on a 8606 form (line 1 & 14) as a "basis" in the Traditional IRA that will reduce the tax of future distributions.

[MarkM221]

The Scenario 2 you describe is correct.  I contributed to a ROTH IRA (in 2020), then recharacterized that to a Traditional IRA and then converted to ROTH IRA (both in March of 2021).  Therefore, in 2022, I have received two 1099-R's, one with Box 7 showing a "2" and one showing "R".

So I think you're saying I should amend my 2020 tax return with the 1099-R information (with "R" in Box 7).  Since I'll consider this an after-tax contribution, I'll have a cost-basis of $xxxx.xx, but a December 31, 2020 Tradition IRA account balance of $0.   

Then my 2021 tax return will have the 1099-R information (with "2" in Box 7) entered on it to show the conversion. 

Have I got it now?  Thank you.

[fanfare]

to convert tax- free you must be converting entire IRA of non-deductible contributions.

your recharacterization turned it into a Traditional IRA contribution.

you then elect to make that non-deductible (Form 8606).

Then it will work as you described.

@MarkM221 

[macuser_22 · Accepted solution]

---

@MarkM221 wrote:

The Scenario 2 you describe is correct.  I contributed to a ROTH IRA (in 2020), then recharacterized that to a Traditional IRA and then converted to ROTH IRA (both in March of 2021).  Therefore, in 2022, I have received two 1099-R's, one with Box 7 showing a "2" and one showing "R".

So I think you're saying I should amend my 2020 tax return with the 1099-R information (with "R" in Box 7).  Since I'll consider this an after-tax contribution, I'll have a cost-basis of $xxxx.xx, but a December 31, 2020 Tradition IRA account balance of $0.   

Then my 2021 tax return will have the 1099-R information (with "2" in Box 7) entered on it to show the conversion. 

Have I got it now?  Thank you.

---

Correct.  You have it.

The recharacterization will produce a 8606 form.

Enter the 2022 1099-R as follows.

Enter a 1099-R here:

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).

OR Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

You will be asked of you had and tracked non-deductible contributions - say yes. The enter the amount from the last filed 8606 form line 14 if it did not transfer. Then enter the total value of any Traditional, SEP and SIMPLE IRA accounts that existed on December 31, 2020.

That will produce a new 8606 form with the taxable amount calculated on lines 6-15 and the remaining carry-forward basis on line 14.

NOTE: If there is an * next to line 15 then 6-14 will be blank and the calculations will be on the "Taxable IRA Distributions worksheet instead.

[Hal_Al · Accepted solution]

@MarkM221  said: "I contributed to a ROTH IRA in 2020 (for 2020). Then in March of 2021, I had to do a back door conversion of those contributions."

A Roth conversion, for tax year 2020,  must be done by 12-31-20.  Although you can make an IRA (traditional or Roth) contribution for 2020 up until April 2021, that leeway is not available for conversions.  Any conversion you made in 2021 will count for tax year 2021.  You may still do a recharacterization for 2020, up until Aril 2021, but not a conversion.