Can I have both Roth Contribution and Roth backdoor conversion in the same year?

[VAer]

Single, salary income: 125k; I am actually qualified to make full $6000 Roth contribution for 2022.

129k is upper limit to make full 6000 contribution. I only make 125k from salary, which is below 129k limit.

This is my first time doing backdoor Roth conversion. Traditional IRA contribution is non deductible, since I have employer sponsored pension plan (government employee). 

I have made total $1500 ($500 for one time, $1000 for second time) backdoor roth conversion for 2022, because I was worried if I had good return on stock market, I might not be qualified for Roth contribution directly, so I chose Roth Backdoor conversion earlier.

Now it is approaching to the end of year, I am sure I can make $6000 Roth contribution. Can I just go ahead and make $4500 roth contribution directly? It is not backdoor roth conversion this time. And $4500 is contributed to a different brokerage Roth account. I have two Roth accounts and two traditional IRAs.

To sum up: I will have $1500 Roth backdoor conversion for one Roth account, and have another $4500 direct contribution to second Roth account. Is it okay? How to deal with tax return next tax season? My traditional IRA contribution (before Roth conversion) is not deductible, since I have employer sponsored pension plan.

Thanks.

[dmertz · Accepted solution]

Yes, what you propose is OK.  The Roth contribution does not affect your Roth conversion and your Roth conversion does not affect your Roth contribution.  Assuming that you perform the Roth conversion in 2022 (it seems that you might have already done so), in 2022 TurboTax you'll enter the $1,500 traditional IRA contribution, the $4,500 Roth IRA contribution.  For the Roth conversion you'll enter the code-2 2022 Form 1099-R that reports the distribution from the traditional IRA and indicate that you converted all of this distribution to Roth.  The conversion and the Roth IRA contribution can go to the same Roth IRA or to different IRAs, the taxable result is the same.

[VAer]

Thanks so much, what is code-2 2022 ?

@dmertz 

[Critter-3]

2022 form  1099-R box 7 code 2  https://www.irs.gov/forms-pubs/about-form-1099-r

[VAer]

@Critter-3 

Thanks. Actually it would be too complicated for me to fill out so many forms. I think I just follow Turbotax questions and try to answer each question correctly. Then it will generate filled out tax return form.

[Critter-3]

No ... you do not fill in a 1099-R ... one is issued TO you from the IRA custodian ... you were being told what to expect next January.

[VAer]

@Critter-3  @dmertz 

Another question: I have $100 traditional IRA non-deductible contribution for year 2020 in another traditional IRA account, no trading activities, the balance is $100.07 now (7 cents coming from interest). I should not open that tradtional IRA account, I was thinking about backdoor Roth IRA then. But eventually, I opened another set of IRAs with a different broker (in this original post), and making backdoor conversion here. 

Can  I also do backdoor conversion for the $100.07?  I have Roth IRA in the other broker too. Two Roth IRAs and two traditional IRAs.

So if converting those $100.07, then for year 2022:

Contribute $4500 to Roth

Contribute $1500 to Traditional IRA

$1600.07 backdoor Roth conversion

Is that okay? Or I can leave $100.07 alone forever, or do it in another year. I am absolutely fine to keep $100.07 there, in the future, I will need to deal with backdoor conversion at some point, if have good capital gain from stock market and make me not able for Roth contribution.

Thanks.

[fanfare]

If you contributed $100 and took a deduction for it, you do not have a full basis in your IRA.

You can't convert an IRA 100% to Roth tax-free unless the basis is 100%.

See Form 8606.

Your best bet is to convert the $100.07 to Roth and pay the tax on it,

Then convert the  other amounts you had planned to convert.

@VAer .

[VAer]

@fanfare

All my traditional IRA contribution was non deductible, since I have employer sponsored pension plan. I do have Form 8606 for the non deductible $100 contribution.

No tax should be paid. 

[fanfare]

OK

yes you did say that above.

so, after converting so much to a Roth IRA, why would you want to retain a traditional IRA account with just $100 in it ?

[VAer]

@fanfare

That $100 is from 2020 contribution, another traditional IRA.

I have two Roth IRAs and two traditional IRAs, under two brokers. All contribution is after-tax money. 

I didn't know much about Backdoor Roth Conversion, that is why I am asking. Now I am thinking to convert all the money and bring both traditional IRAs to $0 balance. Doing so, I don't need to carry Form 8606 for many years.

In the future, if I make non deductible traditional IRA, I should convert it right away, at least convert it in same tax year. No need to carry Form 8606.

[Critter-3]

You will file an 8606 for each year you make a non deductible IRA contribution  but you will not "carry" it to the future ... it will be used up each tax year. 

[VAer]

@Critter-3 

I mean converting previously non deductible traditional IRA contribution.

2020: Make $100 traditional IRA for 2020 contribution, just tried to open an IRA account. But did not do backdoor roth then.

2022: I opened another traditional IRA and roth IRA with another broker, now I have made 1500 non dedutible traditional IRA contribution and $4500 roth contribution with this broker. And I converted $1500 into  roth.

Question: That $100 (actually $100.07, plus interest) has not been converted to Roth yet, and I decide to convert it this year, is it before?

So if  also converting those $100.07, then for year 2022:

Contribute $4500 to Roth

Contribute $1500 to Traditional IRA

$1600.07 backdoor Roth conversion ($1500 from one traditional IRA, and $100.07 from another traditional IRA)

[Critter-3]

Quit beating yourself up ... just convert it all this year and be done with it.

[VAer]

@Critter-3 

Thank you. I will do so, instead of keep form 8606 for future reference.

Too many IRS rules, for non tax professional, I prefer simple tax code.

I have never done backdoor before. This is first year doing backdoor conversion.