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Buddy07
Level 2

Back Door transfer to Roth

I'm completing my 2020 taxes.  This year I had a back door conversion from a traditional IRA to a Roth IRA for both my wife and I for $7,000 each.  I answered all the questions to the best of my knowledge, however, the amounts are not filling in correctly for lines 16 & 17 for Form 8606.  I was told by a tax expert that the amount of $7,000 should appear on each of these lines but they are blank.  I'm not sure what questions I may have answered incorrectly so I am looking for some advice as to make the necessary adjustments to my taxes.  Please advise.

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Accepted Solutions
macuser_22
Level 15

Back Door transfer to Roth


@Buddy07 wrote:

Yes there is a * (asterisk) next to line 15.  Did I not enter something correctly?


That is just an alternative method of. calculating and is normally used if there is a contribution and distribution in the same year.    Print that worksheet to see the calculations.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

View solution in original post

6 Replies
macuser_22
Level 15

Back Door transfer to Roth

Then you did not enter the 1099-R properly and say that it was converted to a Roth.

 

 

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


**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Buddy07
Level 2

Back Door transfer to Roth

I followed the steps you provided in your note.  The good news is that I now have the correct amounts showing up in lines 16 and 17.  However, I expected to see the same amounts show up in lines 8, 9 and 11.  All of those fields are blank of form 8606.  Any additional suggestions would be appreciated. 

 

Thanks for providing me the solution to my first question.

 

macuser_22
Level 15

Back Door transfer to Roth

If there is a * (asterisk) next to line 15 then the calculations were done on the  "Taxable IRA Distribution Worksheet" instead of the 8606 lines 6-13.       This worksheet is described in IRS Publication 590-B worksheet 1-1.

https://www.irs.gov/publications/p590b#en_US_2020_publink1000270091

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Buddy07
Level 2

Back Door transfer to Roth

Yes there is a * (asterisk) next to line 15.  Did I not enter something correctly?

macuser_22
Level 15

Back Door transfer to Roth


@Buddy07 wrote:

Yes there is a * (asterisk) next to line 15.  Did I not enter something correctly?


That is just an alternative method of. calculating and is normally used if there is a contribution and distribution in the same year.    Print that worksheet to see the calculations.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

View solution in original post

Buddy07
Level 2

Back Door transfer to Roth

Thanks for your help.

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