How to do the tax return if I did backdoor roth in 2022 for 2021 year contribution?

[Hannah_W]

I contributed to traditional roth in 2022 for 2021 year contribution and then transfer to roth asap. How should I do the tax return for 2021? 

[MinhT1]

I assume that you contributed to a non-deuctible Traditional IRA then converted it to a Roth IRA. This is called a backdoor Roth IRA conversion.

Please read this TurboTax Help topic on How do I enter a backdoor Roth IRA conversion?

[Hannah_W]

yes, but I did in 2022 for 2021 year. This makes the situation complicated. Should I file the conversion in 2021 tax year return or 2022 tax return?

[DanaB27]

The conversion will be filed on your 2022 tax return because it happened in 2022. But the nondeductible contribution will be entered on your 2021 tax return like the steps below. TurboTax will create Form 8606 with your basis (nondeductible contribution) on line 14. This basis you will enter next year on your 2022 tax return when you enter your 1099-R for the conversion.

To enter the nondeductible contribution to the traditional IRA:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had nondeductible contributions before this tax year
10. If you had a basis in the Traditional IRA before then enter the amount.
11. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount.

Next year on your 2022 tax return you will enter your 1099-R and the basis from the 2021 Form 8606 line 14 (steps 11 and 12):

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. 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"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?"
12. Answer the questions about the basis and value

 @Hannah_W 

[sky fly]

Hello,

@DanaB27 I am going to make the non-deductible traditional IRA contribution prior to April 18 and do the backdoor Roth IRA conversion.  When I tried entering the nondeductible contribution to the traditional IRA following the steps you listed, I did not see the step 11 “Choose Not to Deduct IRA Contributions” in my Home & Business version.  Did I miss something?  Turbo tax currently shows my contribution is not permitted and I need to pay 6% penalty for making excess contribution.  Can you please advise how to fix it?

Also, if I am going to rollover all traditional IRA to solo 401K prior to do the conversion, can I enter 0 for the basis in step 10?

Thanks a lot for your help!

[DanaB27]

If you have a retirement plan at work and are over the income limit you will not get the “Choose Not to Deduct IRA Contributions” screen. It will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible.

Please be aware, that the contribution will be entered on your 2021 tax return since you are making a contribution for 2021 in 2022. But the conversion will happen in 2022 and therefore you will report the conversion when you get your 2022 Form 1099-R on your 2022 tax return.

To verify, you only entered the traditional IRA contribution and no other contribution? Did you have enough taxable compensation to make the contribution? If you did and only contributed $6,000 ($7,000 if you're age 50 or older) then you shouldn't have an excess contribution penalty.

If you do not have any after-tax contributions in your traditional IRA from prior years then your basis from prior years would be $0.

@sky fly