Backdoor Roth Question - multiple years

[drshineraju]

Dear all,

I am trying to correctly fill in my backdoor roth contribution and conversion for both my spouse and myself. Any help is greatly appreciated.

Timeline:

My account

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1) March 2020 - contributed $5750 to traditional IRA for tax year 2019

2) March 2020 - converted $5750 from traditional to Roth for 2019

3) Dec 2020 - contributed  $6000 to traditional IRA for 2020

4) Jan 2021 - converted $6000 from traditional to Roth for 2020

Spouse's account

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Contributed $6000 to traditional IRA and converted $6000 to Roth in Aug 2020 for year 2020.

How do I fill out this information correctly in TurboTax? Any help would be greatly appreciated.

[DanaB27 · Accepted solution]

You will have to enter the nondeductible contributions on your 2019 and 2020 tax return: 

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “traditional IRA”
4. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
5. Enter the amount you contributed
6. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
7. 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.
8. If you had a basis in the Traditional IRA before then enter the amount.
9. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount.

You will enter the conversion in your 2020 tax return (and next year on your 2021 tax return for the $6,000):

1. Click on "Search" on the top right and type “1099-R”
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
5. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
6. On the "Your 1099-R Entries" screen click "continue"
7. Answer "yes" to "Any nondeductible Contribution to your IRA?"
8. Answer the questions about the basis and value

For your wife you will enter her nondeductible contribution on the traditional IRA and enter the her 1099-R for the conversion on the 2020 tax return (see steps above).

[drshineraju]

@DanaB27 

Thank you for the quick response.

I have come across a page which asks the following question:

Enter the total value of Traditional, SEP and simple IRA as of Dec 31, 2020.

I got a Form 5498 from my retirement brokerage with a balance of $6000. This was my non deductible contribution for 2020. This amount was only converted to a Roth in Jan 2021. (so the balance in my traditional was $6000 on Dec 31, 2020. This was a post tax contribution)

When I answer $6000 to the above question on that page, my taxes owed goes up. What should be the amount to fill here? Should I be paying taxes twice on the $6000?

[macuser_22]

If you converted the entire Traditional IRA to a Roth in 2020 then the 2020 year end value would be zero.

[DanaB27]

You will have to look at your end of the year statement (of all your traditional IRAs) what it says for the balance on December 31, 2020.

No, you will not pay taxes twice on the $6,000 if you enter it correctly as nondeductible contribution on your 2020 tax return. If you look at Form 8606 line 14 you will see the basis that you can use for the 2021 conversion.

[drshineraju]

@macuser_22 I did conversion for 2019 in 2020. Balance in traditional IRA was zero after that.

Then contributed $6000 for 2020. However the conversion for 2020 was done in 2021, hence this $6000 shows up as balance in my traditional IRA at the end of 2020.

[macuser_22 · Accepted solution]

I missed that. 

Then your 2020 year end would be $6,000.  

Correction:

Part of the conversions WILL be taxable because you added to the IRA in 2020 so the year end value was not zero.

[macuser_22]

Answer corrected.     Since you added money to the IRA in 2020 the year end balance was not zero so only part of the conversion will be not taxable.

You should have made the contribution in 2021 a 2021 contribution and not for 2020.

[macuser_22]

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@drshineraju wrote:

@macuser_22 I did conversion for 2019 in 2020. Balance in traditional IRA was zero after that.

Then contributed $6000 for 2020. However the conversion for 2020 was done in 2021, hence this $6000 shows up as balance in my traditional IRA at the end of 2020.

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This is an issue that the IRS has never ruled on AFAIK.   Physically the money was not in the IRA at the end of 2020, but due to the legal fiction that deems it to be a Dec 31, 2020 contribution it was. 

Almost everyone will answer the question that the year end value was zero.   I have never heard of the IRS questioning that.   If you go by your year end bank statement, it shoud show the year end value as zero.

I would answer the question with zero 2020 year and value.