8606 form issues

[barnabei]

Hi all,

Need some help with backdoor Roth contributions and the 8606 form.  I’m married filing separately with an AGI >10k so I can’t make tax deductible IRA contributions.  In 2020, I converted $9000 of this traditional IRA $ to Roth (looks like I had left some in the traditional IRA in 2019 and realized it in 2020.  This was probably an oversight, as I generally intend to immediately convert from Trad to Roth).  So, since 2018 I’ve been making backdoor contributions to my Roth.  My 2018 8606 shows $5500 in non-deductible contributions and a basis of $5500 (box 14), and my 2019 8606 shows 6000 in non-deductible contributions in line 1 and $5500 in line 2 (basis).  Line 5 shows $11,500, I can’t see anything in lines 6-12 (TT refers to a Taxable IRA Distribution Worksheet that I can’t locate), then line 13 is $8536 and line 14 is 2964.  Fast forward to the 2020 return and I’m asked to enter the total basis and I enter $2964.  At the end of income my total IRA contributions are $9000 but only $2956 are non-taxable, leaving me with taxes for the other ~$6k as if it were additional income.  Can someone help me understand what is going on here?  Why is some seemingly random percent of this money taxable? Is there a way to make all these distributions non-taxable in future years?

-Matt

[DanaB27]

It seems you had a distribution/conversion in 2019 and left a value in the traditional IRA and therefore, the $2,964 basis were allocated to the amount left in the IRA. The $8,536 basis was allocated to the distribution/conversion in 2019.

Did you make another nondeductible contribution in 2020 or are the $9,000 what was left in the traditional IRA from prior years? If it was the left over amount then it seems you had gains of $6,036 and any gains would be taxable.

To avoid having to pay tax on conversion you should make the nondeductible contribution and then covert the amount right away to avoid having gains in the traditional IRA.

[macuser_22]

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@barnabei wrote:

Hi all,

Need some help with backdoor Roth contributions and the 8606 form.  I’m married filing separately with an AGI >10k so I can’t make tax deductible IRA contributions.  In 2020, I converted $9000 of this traditional IRA $ to Roth (looks like I had left some in the traditional IRA in 2019 and realized it in 2020.  This was probably an oversight, as I generally intend to immediately convert from Trad to Roth).  So, since 2018 I’ve been making backdoor contributions to my Roth.  My 2018 8606 shows $5500 in non-deductible contributions and a basis of $5500 (box 14), and my 2019 8606 shows 6000 in non-deductible contributions in line 1 and $5500 in line 2 (basis).  Line 5 shows $11,500, I can’t see anything in lines 6-12 (TT refers to a Taxable IRA Distribution Worksheet that I can’t locate), then line 13 is $8536 and line 14 is 2964.  Fast forward to the 2020 return and I’m asked to enter the total basis and I enter $2964.  At the end of income my total IRA contributions are $9000 but only $2956 are non-taxable, leaving me with taxes for the other ~$6k as if it were additional income.  Can someone help me understand what is going on here?  Why is some seemingly random percent of this money taxable? Is there a way to make all these distributions non-taxable in future years?

-Matt

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It would appear that for 2020 you made no new contributions that would be on the 2020 8606 line 1 so your only basis is the left over $2,964 and only $2,956 could be used because there was probably more then a zero IRA year end value on the 8606 line 6 (or IRA deduction worksheet line 4 of an * next to line 15) so an amount of $8 remaining basis on line 14.

That is just a guess - view the 2020 8606 and worksheet (if an * next to line 15) for the actual calculations that should tell you

[barnabei]

Dana, 

Yes you are correct - I had left some money in the trad IRA in 2019.  That $9k is $3k that I contributed in tax year 2019 with the intent of converting to Roth and $6k contributed in 2020 that was all converted to Roth.  If I'm understanding your question correctly, you are wondering if that $9k is gains on an investments.  It is not.  

-Matt

[barnabei]

So in 2020, I converted $9k ($3k from tax year 2019 and $6k from tax year 2020) from traditional to Roth.  Since I'm married filing separately, I believe these are non-deductible contributions.  Is that right?

[DanaB27]

Please make sure you enter your 2020 nondeductible IRA contribution on your 2020 tax return:

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 or your spouse have a retirement plan at work and are over the income limit it will be nondeductible and you only get a screen saying $0 is deductible)

Then you should have a basis of $8,964.