How do I enter a backdoor Roth IRA conversion?

[DanaB27]

Please verify that you have the IRA/SEP/SIMPLE box checked when you enter your Form 1099-R. It should be checked if you converted a traditional IRA to Roth IRA. 

@ybot1122

@ccreech6  Did you have any pre-tax funds in your traditional/SEP/SIMPLE IRAs? If yes, then the pro-rata rule applies and each distribution/conversion will have a taxable and nontaxable portion.

You made the contribution for 2021 in 2021 and entered the nondeductible contribution and entered the Form 1099-R for the Roth conversion?

If you need further assistance you can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Online: 

1. From the left menu select Tax Tools. 
2. Then select Tools below Tax Tools. 
3. A window will pop up which says Tools Center.  
4. On this screen, select Share my file with Agent. 
5. You will see a message explaining what the diagnostic copy is. Click okay through this screen and then you will get a Token number. 
6. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

 The instructions for TurboTax Download: 

1. On your menu bar at the very top, click "Online"
2. Select "Send Tax File to Agent"  
3. Click "Send"
4. The pop-up will have a token number
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information. 

[mrouzan]

The issue is Turbo Tax is not asking if your Traditional ira was a non-deductible deposit like it used to. Since this is not happening Form 8606 is not autogenerating. Form 8606 is the form that correct everything. 

[DanaB27]

Please be aware, that TurboTax is asking if you want to make a contribution nondeductible when you enter a traditional IRA contribution. The only time TurboTax doesn't ask if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and TurboTax will create Form 8606.

Also, when you enter your Form 1099-R in the follow-up questions TurboTax asks if you made and tracked nondeductible contributions in previous years. Then you can enter your information from your prior year's Form 8606.

If you are having trouble finding the screens please comment and we will try to assist you.

To enter the nondeductible contribution to the traditional IRA:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. If you had a basis in the Traditional IRA before then enter the amount.
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the 1099-R conversion: 

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 “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Your 1099-R Entries" screen click "continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@mrouzan

[mrouzan]

This doesn't work. I found the issue. Turbo Taxes Software is not populating the 8606 form correctly. Trying to work with someone, but the customer support has been less than stellar. 

[Blueberryblue]

Hi, I need help with the backdoor conversion, I have used turbo tax for years and some years it goes without a hitch and some years the 8606 just would not get generated no matter what I enter, and it is the same currently. I have gone through the 'solutions' posted by turbotax more than two dozen times  and even spoke with customer service, but she was not helpful as she kept confusing the backdoor conversion with recharacterization.  Then I read on the forum that someone said Turbotax was going to fix the issue by 31st of March, but I tried again today and same issue still, I'm getting taxed for my conversion and line 4b still shows taxable amount instead of 0. My token number is 982444. Thank you. 

[town_james]

Hello -

I am having similar issue to many other posters:

- I contributed $6k + $6k after tax, non-deductible to Roth IRA between Jan 2021 and April 2021 - half was for 2020, half for 2021. My income was over the Roth IRA limits so i had Vanguard recharacterize all of it to traditional IRA (which had zero balance).  then all $12k was converted to a Roth shortly after this.

My 1099-R from Vanguard says:

1- Gross dist: 12000.01

2a- taxable amount: 12000.01

2b- X (total distribution checked)

7 - distribution code: 2

IRA/SEP/SIMPLE: x

so when i follow the instructions above, i wind up having my total tax refund reduced (it seems to be calling my distribution "income") and then i also get a warning for being over the Roth IRA contribution limit and it starts the process to tax me for excess contributions

help please!

jt

[DanaB27]

I reviewed your return. It seems as if you had rolled over pre-tax fund into your traditional IRA and therefore had a value on December 31, 2021. Please be aware that a backdoor Roth only works if your traditional IRA is empty. Since you had pre-tax funds in your traditional IRA the pro-rata rule applies and each distribution/conversion will have a taxable and nontaxable part. You can see the calculation on the "Taxable IRA distribution Worksheet". The rest of the unused basis to use in future years will be shown on line 14 of Form 8606.

If you plan to use the backdoor Roth strategy in the future then you might want to think about a reverse rollover where you rollover IRA money to a company plan, like a 401(k). Only pre-tax funds can be rolled from an IRA to a company plan. Therefore, you would isolate the basis and could start the Backdoor Roth procedure fresh. But it only works if your employer allows it, not all plans do.

@Blueberryblue

@town_james You will have to enter the recharacterization of the contribution for 2020 on your 2020 tax return. If you make it nondeductible then TurboTax will create Form 8606 with a basis on line 14 to carry over to 2021. The recharacterization for the 2021 contribution will go on your 2021 tax return. 

You will enter the recharacterization when you enter the contribution to the Roth IRA on your 2021 tax return (these steps will be the same for your 2020 tax return):

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution"
6. Enter the Roth contribution amount 
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (since you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible)

To enter the 1099-R conversion: 

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 “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Your 1099-R Entries" screen click "continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2020 Form 8606 (should be $6,000) and the value of all traditional, SEP, and SIMPLE IRAs

Please see How do I amend my 2020 return? to enter your recharacterization of your 2020 Roth contribution. 

[MillerManCPA]

I'm using TT downloaded software and I'm having issues getting my backdoor Roth IRA to be non-taxable.  I followed the steps shown but it's still showing a portion of my wife's backdoor Roth IRA as taxable.  She did a $6,000 backdoor Roth IRA but it's showing $5,689 as taxable.  And I'm not seeing any Schedule 1 appearing with the IRA Deduction as zero...nothing shows up.

I cannot figure out what I'm doing wrong...and don't understand why the taxable amount is $5,689 when the backdoor Roth IRA amount was $6,000.  It should be zero...the amount showing up doesn't make any sense.

Any suggestions?  #confused

[town_james]

@DanaB27

Thank you for the quick response!!

Why is it telling me that I will have to pay penalties on my Roth contribution now?

I think that's the part that I am most concerned about

I also think I misspoke about my contribution last year - there was no recharacterization:

- first i put the money (12k) directly into a traditional IRA (which had zero balance)

- then i converted to Roth

will i still have to amend my 2020 return?

[MillerManCPA]

I figured out my issue.  I had a value in the box for her IRA balance and it should have been zero.  I updated that to zero and TT calculated the taxable amount of her backdoor Roth IRA as zero.  All good.  Thanks.

[mouz]

Hi TT,

I have the same issue as town_james for backdoor. I have contributed $6K for 2020 and $6K for 2021 traditional IRA and immediately converted these to Roth IRA in March 2021. I am filling the 2021 tax year with 1099R for this $12K. However, I have also excessive contribution of $6K for 2021 so there is 6% fine for that which is $360. How can I differentiate the 2020 and 2021 contribution in turbotax so that whole $12K doesn't come up for 2021? Also, I noticed that 8066 form for 2020 tax return was missing last year in my turbotax return. Should I send that one also this year?

Thanks

mouz

[Blueberryblue]

Thank you DanaB27, 

   Unfortunately I had to rollover from my 401K this year to a Trad IRA because I left my job. If I had known this would be the issue, I would not have contributed to the Trad IRA to attempt a backdoor conversion this year. So rolling back into a 401K is not possible now. I will need to read up more on the pro-rata rules as I am not familiar with it.  Is there anything I can do for this tax year or  am I forced to pay the taxes for now and keep track of it until I can get distributions from my Trad in the future when I  am retirement age?  Also, does this mean I will always have complications doing backdoor conversions going forward as my Trad IRA will no longer be empty? 

Thank you. 

[DanaB27]

Yes, unfortunately as long as pre-tax and after-tax funds are mixed up each distribution/conversion will have a taxable part and a nontaxable part until the traditional IRA is empty.

Yes, you won't be able to perform the backdoor Roth since each conversion will have a taxable and nontaxable part.

@Blueberryblue

@town_james

Yes, you still have to amend your 2020 tax return to enter the nondeductible traditional IRA contribution for 2020 ($6,000). You cannot enter both contributions in your 2021 tax return, that is why you are getting the excess contribution penalty.

 If you didn’t recharacterize the contribution but made direct contributions to the traditional IRA then you will enter the nondeductible contributions like this on your 2021 tax return (you will have to enter this on your 2020 tax return as well for the 2020 contribution):

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 of $6,000
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” since you had a nondeductible contribution before this tax year.
8. Enter the $6,000 basis in the Traditional IRA from your 2020 Form 8606 line 14.
9. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

@mouz

You will have to enter the $6,000 contribution made for 2020 on your 2020 tax return. TurboTax will create Form 8606 with the $6,000 basis on line 14 to carry to 2021. 

On the 2021 tax return, you will only enter the $6,000 contribution for 2021.

To enter the nondeductible contribution to the traditional IRA for 2021:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed $6,000
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” since you had a nondeductible contribution before this tax year.
9. Enter the $6,000 basis in the Traditional IRA from your 2020 Form 8606 line 14.
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the 1099-R conversion: 

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 “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Your 1099-R Entries" screen click "continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[Wyldaisy]

I went back to my 2020 return and noted what forms and fields were populated.  Then, after completing the steps described for my 2021 return, I noted what fields and forms populated.  Based on lines 1040 4 (a) and (b) in 2021 return, I think have done it correctly?  Thanks to all for guidance!

Original Transaction:

• March 2021 (all on same day)
• $7,000 contribution made to traditional IRA – tax year 2020
• $7,000 contribution made to traditional IRA – tax year 2021
• $7,000 conversion to Roth IRA – tax year 2020
• $7,000 conversion to Roth IRA – tax year 2021

2020 Tax Return:

• Form 1040
• Line 4 (a)   $0/blank
• Line 4 (b)   $0/blank

• Form 8606
• Line 1     $7,000
• Line 3     $7,000
• Line 14   $7,000

2021 Tax Return:

• Form 1040
• Line 4 (a)    $14,000
• Line 4 (b)    $0

• Form 8606
• Line 1    $7,000
• Line 2    $7,000
• Line 3    $14,000
• Line 5    $14,000
• Line 13    $14,000
• Line 16    $14,000
• Line 17    $14,000
• Line 18    $0

[trbelair]

Thank you for your help.

I found out that I could make a 2022 contribution to my IRA FOR 2021....but the Fidelity software did NOT allow me to do a Back Door Roth IRA conversion in 2022 for these 2021 $'s.  So I backed out the $7,000 from the IRA and moved it back into my checking account.

Apparently Fidelity does not allow the Back Door Roth IRA Conversion (IRA -> Roth IRA) for a prior year.