Backdoor Roth IRA

[VAer]

@Critter-3 @NCperson 

Example: if I make $6000 traditional IRA non deductible contribution (for year 2022) in January 2023, then there is Form 8606 will be on 2022 tax return. In the same month (January 2023), I make $5000 backdoor roth conversion, will backdoor conversion be reported in 2022 tax return form or 2023 tax return form? If backdoor roth conversion is reported in 2023 tax return form (following year), then I don't need to do the backdoor roth conversion right after traditional IRA contribution.

Or I can do both traditional IRA non deductible contribution and backdoor roth conversion in late December, by the time, I should know if I am qualified to make roth IRA contribution directly or not, depending on stock market (option trading, annual gain/loss is high unpredictable). If no capital gain, my current salary  (around 127k, slightly under income limit  129k) still barely allows me to make Roth IRA full amount contribution directly.

[Critter-3 · Accepted solution]

Example: if I make $6000 traditional IRA non deductible contribution (for year 2022) in January 2023, then there is Form 8606 will be on 2022 tax return. In the same month (January 2023), I make $5000 backdoor roth conversion, will backdoor conversion be reported in 2022 tax return form or 2023 tax return form?  conversion on the 2023 return ... the non deductible contribution on the 2022 return

If backdoor roth conversion is reported in 2023 tax return form (following year), then I don't need to do the backdoor roth conversion right after traditional IRA contribution.  True but why would you let the money sit there any longer than needed if it is earning nothing ?   Better to make the conversion right away and get the money earning something. 

Or I can do both traditional IRA non deductible contribution and backdoor roth conversion in late December, by the time, I should know if I am qualified to make roth IRA contribution directly or not, depending on stock market (option trading, annual gain/loss is high unpredictable). If no capital gain, my current salary  (around 127k, slightly under income limit  129k) still barely allows me to make Roth IRA full amount contribution directly.  Why make things more complicated than needed ?  If you make an IRA contribution then the ROTH conversion (back door)   does it really matter if you can make a "front door" ROTH contribution at all ?  The "can I - can't I" issue is unneeded worry ... just do the back door and be done with it.  It all works out the same in the end. 

[VAer]

@Critter-3 Thanks, you are correct. 

Now I know:

1) Backdoor Roth conversion activity is reported on current calendar year's tax return; while IRA contribution can be done for previous year, as long as it is done before deadline (around April 15).

2) Yes, based on what I have learned, I can always do backdoor roth conversion for current year, if I am uncertain about my income. I was asking the question, since I am not familiar with so many things, just in case of messing some tax forms.  I really support flat tax rate without so many loophole. It makes things complicated, but I still need to know the loophole of backdoor roth conversion, in order to take advantage of loophole. 

Thanks again, I have learned a lot about backdoor Roth conversion after this post. Now I need to summarize some note, in case of forgetting it in the future.

[fanfare]

For some (myself included) it takes a long time to figure out Form 8606 even if you have examined it and studied Pub590 many times.

Eventually you will understand.

Otherwise you have to answer the TurboTax step-by-step questions exactly correctly for correct results.

Sometimes the questions are misleading !

the two main factors determining the taxable amount are:

your basis.

your total IRA value at the end of the tax year

This is an over-simplification, since there are other factors.