Correctly entering Traditional IRA Contributions made for previous year (and this year), with backdoor conversions for each

[moses0020]

Hi,

My spouse and I are married filed jointly. In 2021 we begun each making traditional IRA contributions, and then did the backdoor conversion to Roth IRA. However, during 2021 calendar year, we each did contributions for both previous year (2020) and current year (2021). I'm having trouble understanding if I entered correctly in Turbotax  (download version). 

My questions:

• Given all of the information below, do I need to do any amending of 2020's return, or do I need to file anything additional for 2020?
• Did I enter everything correctly for this years return, and do the forms look OK after going through questionaire?

Recap of situation:

• Contributions:
  • February 2021:
    • Me: 6K Traditional IRA contribution for previous year 2020, followed by backdoor conversion a few days later
    • Spouse: Same as me
  • December 2021:
    • Me: 6K Traditional IRA contribution for current year 2021, followed by backdoor conversion a few days later
    • Spouse: Same as me
• Tax forms / Previous Return
  
  • 2020
    • Return: It looks like last year's return includes form 8606 (one for each of us), showing 6k each in line 1 and 14, so I'm guessing when filing our 2020 return we must've indicated we were planning contributions later on (subsequently in 2021), as we did not make contributions during 2020 calendar year.
    • Form 5498: ~ May 2021, we each received form 5498 for 2020 showing the 6k contribution made
  • 2021:
    • 1099-R: As expected we both received 1099-Rs showing:
      
      • Line 1: 12k
      • 2a (taxable amount): 12k
      • Line 7: 2, with IRA/Sep/Simple checked
• What I entered into Turbotax
  • During the interviews, I imported each of our 1099-Rs as is
  • When asked during interview (separately for each of us), I chose
    • When asked: "What did you do with the money." -> "Moved money to another retirement account" AND "I did a combination of rolling over converting, etc."
    • When asked If i made and tracked non-deductble contributions, I said YES, and entered 6k as this was the amount I saw in 2020s 8606 line 14.
    • When asked for Traditional IRA balance as of December 31, I chose 0 for both, as the money would've been converted to the Roth IRA by then.
• What it shows for Income Summary (after entering all information)
  • IRA Distributions - nontaxable: $24,000 
  • 1040: shows 24,000 on line 4a, with 4b 0
  • Form 8606 (Same for each of us):
    • line 1 6,000
    • Line 2 6,000
    • Line 3 12,000

Thanks!

[FangxiaL]

To answer your first question: you do not need to amend your 2020 tax return.

As to your second question, I can only provide you with some instructions on how to properly enter Backdoor Roth IRA conversions.

Here is the proper way to enter Backdoor Roth IRA conversion:

Follow the two-step process to properly enter your backdoor Roth conversion:

Step 1: Enter the Non-deductible contribution to a Traditional IRA:

1. Open your return if it's not already open
2. Inside TurboTax, search for ira contributions and select the Jump to link in the search results
3. Select Traditional IRA on the Traditional IRA and Roth IRA screen and Continue
4. Answer No to Is this a Repayment of a Retirement Distribution?
5. On the Tell Us How Much You Contributed screen, enter the amount contributed and continue
   • Enter $6,000 for Your total 2021 traditional IRA contributions
6. Answer No on the Did You Change Your Mind? screen
7. Answer No on Any Excess IRA Contributions Before 2021?
8. Answer Yes, I made and tracked nondeductible contributions to my IRA, or No, I did not make and track nondeductible contributions to my IRA. If you don't have any other Traditional IRA accounts, you can answer Yes
9. Enter $6,000 for Total Basis as of December 31, 2020 on the next screen
10. Answer the questions on the following screens, until you reach Choose Not to Deduct IRA Contributions. Select Yes, make part of my IRA contribution nondeductible and enter $6,000 in the box. 

Step 2: Enter the Conversion from a Traditional IRA to a Roth IRA

 Inside TurboTax, search for 1099-r and select the Jump to link in the search results

1. Answer Yes to Did you get a 1099-R in 2021?, then Continue
   • If you land on Your 1099-R Entries screen, select Add Another 1099-R
2. Select how you want to enter your 1099-R (import or type it in yourself) and follow the instructions
3. Answer None of these apply when you reach the screen Do any of these situations apply to you?
4. Select I converted some or all of it to a Roth IRA on the Tell us if you moved the money through a rollover or conversion screen
5. Next, choose Yes, all of this money was converted to a Roth IRA
6. Continue answering questions until you come to the Your 1099-R Entries screen

To check the results of your backdoor Roth IRA conversion, see your Form 1040:

1. On the left side of your screen, select Tax Tools, then Tools
2. Under Tool Center, select View Tax Summary
3. On the left side of your screen, select Preview my 1040
   • Your backdoor Roth IRA amount should be listed on Form 1040, Line 4a  as IRA distributions
   • Taxable amount should be zero unless you had earnings between the time you contributed to your Traditional IRA and the time your converted it to Roth IRA, then the earnings would be taxable
   • Schedule 1, Line 20 IRA deduction, should be blank
4. Select Back on the left side of your screen to return to where you left off in TurboTax

[moses0020]

Thanks for the answer. I confirm I went through all the prompts as you suggested, but I'm wondering if there is anyway to make sure that I indicated to Turbotax (and reflected in the forms correctly), that half of the IRA Contributions (and subsequent backdoor conversions) were for 2020, and other half for 2021. (Since both of these actions occurred in 2021)

[DanaB27 · Accepted solution]

You can see it on Form 8606, line 1 shows your basis from the 2021 contribution and line 2 shows your basis from the 2020 contribution (since you only had the basis from 2020 and no other year).

Please note, the conversion was a 2021 conversion since it happen in 2021.

[moses0020]

One follow-up question as it relates specifically to this situation for PA taxes. During the Pennsylvania interview, it asks what kind of retirement income I'm receiving from my brokerage. I choose Traditional or Roth IRA: i'm  under 59.5.

It asks for gross distribution and basis for each., with Gross distribution pre-filled as 12,000 each.

My question: Similar to Federal, do I also enter 6,000 as my basis for state retirement income? (because I made 6k contribution to traditional IRA for 2020?) It's a bit more confusing because the tooltip mentions using "Cost recovery method".

It appears this reduces my state taxable income by ~12k (6k for each), so just want to ensure this is the correct way.

Thanks,

[FangxiaL]

Since PA does not permit deductions or exemptions for contributions to retirement plans, investments in annuities, mutual funds, money market funds, and other personal contributions. PA will not tax distributions from these accounts until the taxpayer has recovered an amount equal to contributions. 

In your case, enter $12,000 in the box if the $12,000 represents the contribution you made to the IRA account.

[shanavt]

Hello - this was very helpful but I am wondering if you can provide instructions on what to do in the previous year.  So I contributed to a Traditional IRA and converted to a Roth for tax year 2022 but I did it between January 1, 2023 and April 18, 2023 so I don't have a 1099-R for 2022.  Can you provide step-by-step instructions for the online TurboTax for that scenario?  And what my 1040 and 8606 should look like?  Thanks!

[HopeS]

A backdoor Roth IRA allows you to get around income limits by converting a traditional IRA into a Roth IRA. Contributing directly to a Roth IRA is restricted if your income is beyond certain limits, but there are no income limits for conversions.

You’ll receive a Form 1099-R with code 2 in box 7 (or code 7 if your age is over 59 ½) in the year you make your Roth conversion. You should report your conversion for the year you receive this 1099-R:

• If you received this form in 2022, complete both steps below to report it on your 2022 taxes
• If you'll receive this form in 2023, wait to report it on your 2023 taxes. In this case, only complete Step 1 below for your 2022 taxes. You’ll complete both steps next year when filing your taxes for 2023

Doing a backdoor Roth conversion is a two-step process. Please review the link below for the steps to follow:

Backdoor Roth

@shanavt 

[shanavt]

Thank you for your response.  However, there are some screens that are not mentioned in the instructions.

In the below screen I clicked Yes.

Any Nondeductible Contributions to Your IRA?

Let us know if you made and kept track of any nondeductible contributions to your traditional IRA from 2021 or prior years. (This is not common.) Most people do not make or track any nondeductible contributions to their IRAs.

Yes, I made and tracked nondeductible contributions to my IRA.   No, I did not make and track nondeductible contributions to my IRA.

But then I get this screen - should this value be $0?

Let's Find Your IRA Basis

Remember, most people with traditional IRAs do not make or track nondeductible contributions that give them a basis other than zero. If you did make any nondeductible contributions, look at your most recent Form 8606. Find the box called total basis and enter the number from that box below. If you never filed a Form 8606, just enter 0 (zero). Learn More

Total Basis as of December 31, 2021

I ask because then I receive this screen.  Income Too High To Deduct an IRA Contribution Your modified adjusted gross income (MAGI) is $148,673, which puts you over the limit for IRA deductions. To deduct a contribution, you can't have a MAGI of over $78,000 while being covered by a retirement plan at work. Learn More And when I click Continue I get the below screen. And then the section is over.  Is that all I have to do this year if I made the contribution for 2022 between Jan 1 and Apr 18 2023? Your IRA Deduction Summary Based on what you've entered you don't qualify for an IRA deduction.   You will need to complete your return before we can show you the actual results. Watch for your actual IRA deduction results later on after Deductions & Credits.   Your IRA Deduction

[DavidD66]

I'm not sure what your question is.  If you have not made in deductible contributions to an IRA, your basis in Nondeductible Contributions is $0.  The program is warning you that your current year IRA contribution is not deductible.  If you made a contribution for the purpose of doing a Backdoor Roth, that doesn't matter.  However, for some taxpayers, they only want to make a traditional IRA contribution if it is deductible.  

[shanavt]

Thank you for your response. My question was in response to @HopeS instructions that states I should only complete step 1 of the instructions provided in the below link if I contributed to a Backdoor Roth for 2022 but did so between Jan 1 and Apr 18 of 2023.  I followed the steps in step 1 of the link below but that led me to the additional screens in my last message. So I was verifying I completed those additional screens correctly. 

I also had asked in my previous question what my 1040 and Form 8606 should look like if I contributed $6K to a backdoor Roth for 2022 but made that contribution between Jan 1 and Apr 18 2023. So I can verify the forms are correct before filing.

Thanks for the help!

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/enter-backdoor-roth-...

[AnnetteB6]

You answered the additional questions correctly.  Since TurboTax stated that you do not qualify for a Traditional IRA deductible contribution, the default is that it will be treated as non-deductible.

You should not see anything on your Form 1040 with regard to the Traditional IRA contribution.  Form 8606 should show $6000 on lines 1 and 4 as a result of your non-deductible Traditional IRA contribution.

If you have already converted the Traditional IRA to a Roth IRA, that will be reported on your 2023 return because it was a 2023 transaction.  You should not see anything on Form 8606 related to this.

@shanavt 

[shanavt]

Thanks! I think this is my concern.  If you see below I have answered this question correctly saying that I contributed the $6K b/t 1/1/23 and 4/18/23 but then below that you will see my 8606 which shows blank on line 4.  I am not sure how to correct that using the web version or why it appears that way.

[ErnieS0]

There would not be an amount on line 4r unless you took a distribution in 2022. If you did not, the line 3 amount will carry to line 14.

@shanavt 

[moses0020]

Edit: Created new post.