Any NonDeductible Contributions to IRA

[nilaytewari]

When do we get this screen,"Any NonDeductible Contributions to IRA"  I am getting it for my wife and not for me. I have got 1099-r for my wife but not for me, is that the reason this screen showed for my wife

Also what does it mean when it says let us know if you made and kept track of any non deductible contributions to traditional IRA from 2022 or prior years. 

My wife did not contribute any non deductible to IRA for year 2023, should i just enter No. 

the part about prior years is confusing me, as i have made non deductible contributions in the past, so does that mean i enter Yes here.

Also why does the tax i owe decrease if i select Yes for the above question

[DanaB27]

Yes, you only get this screen in the retirement section if you have a Form 1099-R with IRA/SEP/SIMPLE box checked.

You also get this screen when you are in the IRA contribution section.

If your wife never made any nondeductible traditional IRA contributions in prior years and therefore never filed Form 8606 then you will select “No” to this question.

If you didn’t make a nondeductible traditional IRA contribution for 2023 or didn’t take a distribution, then you are not required to file Form 8606. Therefore, you do not get these questions. Please see Who Must File Form 8606 for details.

If you say yes and enter a basis then part of the distribution will be allocated to this basis and will be nontaxable. This is calculated on Form 8606 (or the Taxable IRA Distribution Worksheet if lines 13 and 18 have a *).

[nilaytewari]

@DanaB27 Thanks for your response.

I have some follow up questions

               If your wife never made any nondeductible traditional IRA contributions in prior years and therefore                  never filed Form 8606 then you will select “No” to this question.

My wife has made non deductible contribution for year 2022 (made in early 2023 for bakdoor roth conversions) just not for year 2023. So do i enter Yes for above question.

Here is the scenario for my wife

In 2023 my wife had put 6k in traditional IRA and then moved to Roth IRA some time later, she has received one  1099-R from that. this has IRA/SEP/SIMPLE box checked, it has $6003 as distribution.

Also she had changed jobs in 2022 and her previous employer moved her 401k to an IRA account in 2023, so she got one 1099-r for it for $910 (This was deductible as it was 401k).  This does not have IRA/SEP/SIMPLE box checked

For this scenario she answered No on the screen Any NonDeductible Contributions to IRA  and now $6004 shows taxable. Should we answer Yes on that screen and then enter 6000 as basis from the last years 8606

[DanaB27 · Accepted solution]

Yes, since your wife had a basis from her nondeductible contribution for 2022, she will answer “Yes” and enter the $6,000 basis from her 2022 Form 8606 line 14. 

Please be aware, since your wife had pre-tax funds from your 401k rollover in her traditional IRA now the pro-rata rule applies. This means that with each distribution/ conversion you will have a taxable and nontaxable part.

Please see How do I enter a backdoor Roth IRA conversion?  for detailed instructions.

[nilaytewari]

@DanaB27  thanks that answers my question.

for the amount left in her traditional IRA, approx. $910 can i move all of it to her new employer's 401k account  in year 2024, and what will be the consequences of that for subsequent tax returns if she decide to do backdoor ROTH in future for both scenarios

             if this 910 stays in her traditional IRA 

            if this 910 is transferred to new 401k account

[DanaB27]

If your wife moves the pre-tax funds to her 401(k) in 2024 then the pro-rata rule no longer applies for 2024.

If your wife does not move the funds to her 401(k) in 2024 then the pro-rata rule will continue to apply, where part of the conversion will be taxable. In this case, you might want to consider converting the funds in 2024 and just pay the taxes on this amount. Then you can do the backdoor Roth without any issues in the future.