Correctly entering Traditional IRA and Backdoor conversion after previous year happenings

[moses0020]

Hi,

Following up here. Ever since 2021 (Where I made 2x 6k contributions for both tax year 2021 and 2020, both within 2021), I've done Contributions & immediate conversions within each Tax year. 

e.g.

• 2022: Single 6k contribution and immediate conversion within 2022
• 2023: Single 6.5k contribution and immediate conversion within 2023

For the last two years (Tax year 2022 and tax year 2023), I always trip up on the question "Any nondeductible  contributions to IRA?". I *believe* I hit Yes here, but want to confirm as many articles mention not having to hit Yes if you have a planned "clean" contribution within the tax year. Subsequently, it asks for my Total IRA basis. If I look at form 8606 for last few years: 

• 2021 Form 8606
  • Line 2: 6,000
  • Line 14: 12,000
• 2022 Form 8606
  • Line 2: 0
  • Line 14: 6,000
• 2023 Form 8606: Confirming this will again be:
  • Line 2: 0
  • Line 14: 6,000 

Additional question:

• Ever since I made two contributions in 2021 (one for tax year 2020, one for tax year 2021), can I always expect to carry this 6k basis forward? e.g. Will I always have form 8606 with 6k basis?
• Even if I make clean, planned yearly contributions with immediate conversions within the same year, will I always have to hit "Yes" to "Any nondeductible  contributions to IRA?" (because of what happened in 2021)?
• Confirming Income summary in turbotax for 2022 and 2023 should both show IRA distributions - nontaxable?

Thanks!

[moses0020]

Gentle bump

[Opus 17]

It's not helpful to start over, all the people you previously interacted with lose the connection to the discussion.

Based on a quick review of the previous  thread:

I will assume you started with zero balance in any traditional IRA, and that all your contributions have been non-deductible, otherwise your situation doesn't make sense.

For 2020, you made a $6000 non-deductible contribution.  That should have been reported on your 2020 tax return on form 8606, even if it was made during calendar year 2021.  You should have a form 8606 for 2020 that has:

Line 1 non-deductible contributions made for 2020  ....$6000

Line 2 total basis ....$0

Line 3 did you take a distribution or conversion ...No

Line 14, total basis for 2020 and before... $6000.

Then, on your 2021 tax return, you would report the non-deductible contribution of $6000.  Even though you made two separate Roth conversions, they are added together and reported for 2021.  (A contribution can be retroactive up until April 15, but a conversion is never retroactive, it happens when it happens.). So your 2021 form 8606 should look something like this:

Line 1 non-deductible contributions made for 2021  ....$6000

Line 2 total basis (this is your prior basis) ....$6000

Did you make a Roth conversion...Yes

Line 6 total value of all IRAs as of December 31, 2021 ...$0 (it should be zero if you did a full Roth conversion)

Line 7 distributions ...$0

Line 8 Roth conversions ...$12,000 (assuming no gains or losses)

Line 10 ...1.00

Line 11 non-taxable portion  ...$12,000

Line 14 new total basis for 2021 and earlier years ...$0

From then on, your basis in the current year (line 2) is equal to your ending basis in the previous year (line 13 from the previous year).  Which should be zero.

If your 2022 form 8606 shows zero basis on line 2, but a $6000 new basis on line 14, then it sounds like you didn't properly report the conversion in 2022.  What are you showing on form 8606, line 8, 10 and 11?  What is shown on form 1040, line 4a and 4b?  

[moses0020]

Apologies, I had thought previous discussion was marked solved, and since I was asking a set of new questions, wasn't sure if a new thread was appropriate. 

Thanks for the comments. 

• Yes, confirming I started with zero balance in any traditional IRA. Yes, all contributions made with after tax dollars.
  
  
• Yes, for 2020, both my spouse and I each made $6000 non-deductible contributions. Confirming form 8606 on 2020 tax return shows:
  • Line 1: 6,000
  • Line 2: 0
  • Line 3: 6,000. Distribution = No
  • Line 14: 6,000
  • However, I'm noticing line 4 (Enter those contributions included on line 1 that were made from Jan 2021 through April 15) = 0. Since I made my 2020 Contribution in Feb 2021, I'm guessing this should instead be 6,000?
    
    
• 2021 form 8606 shows:
  • Line 1: 6,000
  • Line 2: 6,000
  • Line 3: 12,000. Did you take distribution or make conversion
  • Line 4: blank
  • Line 5: 12,000
  • Line 6: blank
  • Line 7: blank
  • Line 8: blank
  • Line 10: x
  • Line 11: blank
  • Line 12: blank
  • Line 13: 12,000
  • Line 14 total basis: 0
• In 2022, form 8606 shows:
  • Line 1: 6,000
  • Line 2: 0
  • Line 3: 6,000
  • Line 8: blank
  • Line 10: x
  • Line 13: blank
  • Line 14: 6,000
• 2020 1040:
  • 4a: 12,000
  • 4b: 0

[Opus 17]

@moses0020 

Firstly:

However, I'm noticing line 4 (Enter those contributions included on line 1 that were made from Jan 2021 through April 15) = 0. Since I made my 2020 Contribution in Feb 2021, I'm guessing this should instead be 6,000?

No, because if you answered "no" to the question about rollovers and distributions, you skip from question 3 to question 14 and don't fill out the rest. 

2020 and 2021 look ok.  It also looks like you did not report the conversion on your 2022 return.  Or rather, you reported in a way that did not generate a form 8606.  Form 1040 line 4a and 4b are correct for this situation, so it is a bit strange that you would not have the conversion on line 8 of form 8606.  Did you use Turbotax or another software program or file by hand?

I'm not quite sure how to solve this.  You probably need to file an amended 2022 return, that will include a correct form 8606 for yourself and your spouse (each of you should have a separate form 8606 for your separate IRA contributions and conversions.).  It won't change your overall tax.

In some cases you may be able to file just an amended form 8606 without the whole rest of it, but I am not sure if this situation is appropriate for that.  (I'm still confused as to what you did in your tax program to put $12,000 on line 4a, but have nothing on the 8606.)

@dmertz  any thoughts?

For 2023, you would start out with line 2 of form 8606 as $zero, assuming that you did the proper backdoor conversion in 2022 and you fix the 2022 form 8606s. 

[moses0020]

@Opus 17 -- For 2022, When you say "reported in a way that did not generate a form 8606," are you able to clarify? Are you specifically talking about line 8 (Amount converted from traditional to roth) being blank? I guess now i'm wondering why this is blank for 2021 as well...

Yes, I used turbotax desktop, and still have the file saved. I can try to reinstall 2022 version and open it to look back at the prompts (to see how i answered). Since 1040 4a says 12,000 and b (taxable amount) says Rollover, is it possible I chose an option for rollover instead of conversion?

[dmertz]

I agree that the 2022 Form 8606 indicates that no Roth conversion was reported on the 2022 tax return.

[Opus 17]

---

@moses0020 wrote:

@Opus 17 -- For 2022, When you say "reported in a way that did not generate a form 8606," are you able to clarify? Are you specifically talking about line 8 (Amount converted from traditional to roth) being blank? I guess now i'm wondering why this is blank for 2021 as well...

Yes, I used turbotax desktop, and still have the file saved. I can try to reinstall 2022 version and open it to look back at the prompts (to see how i answered). Since 1040 4a says 12,000 and b (taxable amount) says Rollover, is it possible I chose an option for rollover instead of conversion?

---

Yes, your 2021 form 8606 is also incorrect, although in a different way.  If you look at the form and the instructions, it is a relatively simply math problem.  line 1 + line 2 = line 3, and so on.  Line 13 (non-taxable portion of all distributions) is supposed to be just line 11+line 12, and line 11 is supposed to be line 8 multiplied by the fraction on line 10.   If line 8, 11 and 12 are all zero, line 13 can't be $12,000.  (However, because line 13 does show $12,000, line 14 shows that your updated basis was zero, which does turn out to be correct in this case.)

No, I can't think of any way this could happen.  Turbotax should not pass, and the IRS should not accept, a tax return with such blatant simple mathematics errors.  I wonder if your PDF is wrong, but the return was filed correctly.  As unlikely as it should be that the PDF is wrong, it is more unlikely that you could e-file a return with such obvious math errors.

Did you e-file?

At this point I want to send you to the IRS web site to get your tax return transcripts for 2021 and 2022.  You may have to register an account if you have not already done it.

https://www.irs.gov/individuals/get-transcript

A tax return transcript is an electronic summary of all the entries on your return, and it should include a line by line summary of both 8606s for you and your spouse for those years.  This will show what the IRS actually has recorded in your file.  You should look specifically at line 8 (Roth conversion amount), line 11 (non-taxable portion of Roth conversions) and line 13 (should equal line 11+line 12).  

See what the IRS actually has on file for you.  After that, we will have a better idea of how to move forward.

Another option is to try and get tech support involved in your case.  For this, you would do the following.

• Reinstall turbotax 2021 and 2022 on your computer.
• Make a duplicate copy of your tax data files (keep the originals in a safe place and don't alter them)
• Open the duplicate copy
• Generate a new PDF, or look at form 8606 in forms mode.  Maybe your PDF will now be correct, indicating the previous PDF had mistakes, and you can stop at this step.
• If form 8606 still doesn't add up, go to the Support menu and click "generate token."  This will upload an anonymized version of your file to Turbotax Support and give you a code number.  Post the code numbers here, and I can forward them for investigation.  The code number will be used to retrieve your file so the support person knows who to contact for further information.  

I can't promise they will follow up but I can ask.  

[dmertz]

If a 2022 Form 1099-R was entered into 2022 TurboTax for a distribution from a traditional IRA, on TurboTax's 1099-R form either the IRA/SEP/SIMPLE box was failed to be marked or the distribution was mistakenly marked as having been rolled over rather than being marked as converted to Roth.

[Opus 17]

---

@dmertz wrote:

If a 2022 Form 1099-R was entered into 2022 TurboTax for a distribution from a traditional IRA, on TurboTax's 1099-R form either the IRA/SEP/SIMPLE box was failed to be marked or the distribution was mistakenly marked as having been rolled over rather than being marked as converted to Roth.

---

2022 shows no conversion, resulting in the incorrect carry forward of a $6000 basis.  Failure to report the conversion could be due to entering the 1099-R incorrectly.

But how could the 2021 form 8606 have an entry on line 13 if lines 8 and 11 are blank?

[moses0020]

@Opus 17Yes, I e-filed. I downloaded transcripts. They are more of a plain text dump (without line numbers), so pasting exactly what I see

2020:

• 1040 Section lines of note:
  • Total IRA Distributions: 0
  • Taxable IRA Distributions: 0
• 8606 Section:
  • 

2021:

• 1040 Section:
  • Total IRA Distributions: 24,000
  • Taxable IRA Distributions: 0
• 8606 Section:
  • 

2022:

• 1040 Section:
  • Total IRA Distributions: $12,000
  • Taxable IRA Distributions: 0
• 8606 Section:
  • 

[dmertz]

As suggested by the 2022 Form 8606, the 2022 transcript also indicates that no 2022 Roth conversion was reported on your tax return.  Note that IRS transcripts don't record additions to traditional IRA basis, they only record the application of basis to traditional IRA distributions.

What is the code in box 7 of the 2022 Form 1099-R that reports the $6,000 distribution from the traditional IRA?

What is the code in box 7 of the 2023 Form 1099-R that reports the $6,500 distribution from the traditional IRA?

[Opus 17]

@moses0020 

That’s helpful.  It seems that the IRS has properly recorded your 2021 conversion, even though the math on your copy of form 8606 doesn’t seem to add up.  So I would say you can close the book on 2020 and 2021, they seem to be correct.  

You probably need to amend your 2022 return.  I would follow up with @dmertz    

[moses0020]

---

@dmertz wrote:

As suggested by the 2022 Form 8606, the 2022 transcript also indicates that no 2022 Roth conversion was reported on your tax return.  Note that IRS transcripts don't record additions to traditional IRA basis, they only record the application of basis to traditional IRA distributions.

What is the code in box 7 of the 2022 Form 1099-R that reports the $6,000 distribution from the traditional IRA?

What is the code in box 7 of the 2023 Form 1099-R that reports the $6,500 distribution from the traditional IRA?

---

For both 2022 & 2023, 1099-R (For both my spouse and I) shows Code 2 in Box 7, with IRA/SEP/Simple having (X)

[dmertz]

If those were entered but no Form 8606 Part II was generated, either the IRA/SEP/SIMPLE box was not correctly marked on TurboTax's 1099-R form or TurboTax was not properly told that the distribution was converted to Roth.  (Or perhaps the wrong spouse was specified as the recipient in TurboTax, but that would just result in the conversion showing up on the wrong spouse's From 8606.)