Quick question: if recharacterized a Roth contribution, do you still have to report the Roth 1099-R in Turbotax?

[DanaB27]

Yes, then your wife's basis with $2,441 on line 2 is correct.

When you increased the amount you contributed in 2022 for 2021 then this increased the basis amount that wasn't available to be converted in 2021, therefore decreasing the amount of basis on line 5 on Form 8606. Line 5 is used to calculate the nontaxable portion on line 13.

The value entered under "Deduction & Credits" is different than the value entered under Wages & Income. 

Yes, in the "Deduction & Credit" section you will have $1,000 as value. 

Yes, in the "Wages & Income" section, you will enter $0 for the value.

Yes, in the  "Wages & Income" section, you will enter $1,000 for outstanding recharacterization.

@dhuynh44 

[dhuynh44]

Hi @DanaB27 

Thank you

The value entered under "Deduction & Credits" is different than the value entered under Wages & Income. 

Yes, in the "Deduction & Credit" section you will have $1,000 as value. 

Yes, in the "Wages & Income" section, you will enter $0 for the value.

Geez, now I know why I am having such a hard time with TurboTax, these questions are slightly misleading.   Irrespective of TurboTax, in general tax talk, does the “year end value of IRA”  VALUE include: 

• actual dollar amount end of year balance in IRA account
• any contributions in 2021 for 2020
• does this VALUE also include any outstanding rollovers? 

I think this is where I’m confused, for example, on our IRA WORKSHEET for all calculations in TurboTax document: 

Line 2 it says year end value for 2020:

• Mine only says $1000 (I had an outstanding recharacterization of $1000 + a $1000 contribution in 2021 for 2020)
• However my wife says $2500, which HAS to be her outstanding recharacterization in 2021 (she did not contribute anything directly to traditional in 2021 for 2020)
• is this a government form or simply TurboTax calculation form?

So why isn’t my line 2 on the worksheet $2000?  Why doesn’t it include both recharacterization + contribution the following year?

If the value doesn’t include recjaracterizations shouldn’t my wife’s be $0?

I hope this makes sense, I just want to make sure I’m understanding it this time.  Thank you!!!

[DanaB27]

The value in the Wages & Income section (used on Form 8606 when you take a traditional IRA distribution/make a conversion) is:

• The value that is shown on your statement on December 31 plus
• Outstanding rollovers plus
• Outstanding recharacterization. 

You don't include the contributions made in 2021 for 2020 in the value.

Yes, the entries on your IRA WORKSHEET are correct. This is a governmental worksheet.

When TurboTax asks about the value in the Deduction & Credit section it is used on Form 5329 to calculate the 6% excess penalty. One year TurboTax was asking this question always when you entered a contribution even if you didn't have an excess contribution.

@dhuynh44 

[dhuynh44]

@DanaB27 

thank you.  Just trying to make sense of everything and all my numbers match.   Looks like I did it correctly the first time with 2020 line 14 $1797 for me and $2441 for my wife. Thanks 

[DanaB27]

Yes, line 14 of your 2020 Form 8606 should be $1,797 for you and $2,441 for your wife. 

You are welcome. I'm happy to help.

@dhuynh44 

[dhuynh44]

I'm sorry @DanaB27 , are you able to provide some clarity on something?  This is just for my understanding, as through this whole process I am learning so much.

On "IRA Information Worksheet" Line 2: year-end value on 12/31/2020 my wife's value is $2500.  Why is this the case?  She has $0 at year end statement, and nothing was contributed in 2021 for 2020.  The only $2500 I could think of would be her $2500 recharacterization for 2020, but you stated that this doesn't count for VALUE at end of year.

Are you able to provide any clarity to this?  Thank you!

[DanaB27]

As I stated above the value used on Form 8606 (when you take a traditional IRA distribution/make a conversion) is:

• The value that is shown on your statement on December 31 plus
• Outstanding rollovers plus
• Outstanding recharacterization. 

Your wife had an outstanding recharacterization therefore her value has the $2,500 characterization included.

@dhuynh44 

[dhuynh44]

@DanaB27

I get it, thank you!

[dhuynh44]

Hey @DanaB27 ,

I think I have finally fixed my 2020 and 2021 amendments.  Thank you so much.  Are you able to verify my wife's 8606 from 2021 since we decided that $2441 was the correct basis please?

To recap for my wife:

• 2020 Line 14 basis: $2441
• $4580 contributed to traditional in 2021
• Rolled over money from 401k to traditional ending balance in 2021 as $18,246 which $500 was nondeductible (did not know about pro-rate rule unfortunately)
• 1099-R for 2021 ($7265)

Line 1 = $4580

Line 2 = $2441

Line 3 = $7021

Line 4 = 0

Line 5 = $7021

Line 13 = $1999

Line 14 = $5022

Line 16 = $7265

Line 17 = $1999

Line 18 = $5266

I finished my 2022 questions for IRA contributions/deductions, to recap:

• $2920 contributed in 2022 for 2021
• $6000 contributed to traditional in 2022
• 1099-R = $9420
• Converted everything for the year, resulting in amount $0 in traditional

Line 1 = 6000

Line 2 = 3371

Line 3 = 9371

Line 4  = 0

Line 5 = 9371

Line 13 = 9371

Line 14 = 0

Line 16 = 9420

Line 17 = 9371

Line 18 = 49

Does this mean going forward I can do clean backdoor Roths for 2023 and essentially pay $0 in taxes if done correctly?

My wife to recap:

• Contributed $0 to traditional
• 1099-R  = $500
• Ending balance in traditional ($14666)

Line 1 = 0

Line 2 = 5022

Line 3 = 5022

Line 5 = 5022

Line 13 = 166

Line 14 = 4856

Line 16 = 500

Line 17 = 166

Line 18 = 334

My wife has Line 14 = $4856.  I am going to stop doing backdoor Roth's for her until all is converted to Roth (if she chooses to do so).  How will this $4856 basis impact if:

• She decides to convert her traditional slowly to Roth?
• She withdraws from her traditional at retirement age (without converting to Roth)?

Thank you!

[DanaB27]

Yes, since your balance was $0 at the end of 2022 you will be able to do “clean backdoor Roths” for 2023. Yes, if you right away convert your nondeductible traditional IRA contributions and have no earnings then the conversions will be nontaxable.

For your wife, she will have with each distribution or conversion a taxable and nontaxable part until the basis is used up because of the pro-rata rule. 

Is your wife still working and has a retirement plan at work? If yes she could ask if she can do a reverse rollover. A reverse rollover is where you rollover the 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.

@dhuynh44 

[dhuynh44]

@DanaB27 

She will actually be quitting her job soon to be home full time.  She does have a 401k with them in additional to the traditional IRA.   We converted everything she contributed nondeductible to the traditional IRA but it has obviously created a basis.  After she leaves her job would it make sense to roll her 401k into the current traditional IRA she has?   Or still do a reverse rollover even though she’s won’t be working anymore, convert the basis, and roll it back into a traditional IRA?  It doesn’t make sense to keep her 401k if she is not contributed to it anymore, what is the best option to do with her 401k?

“For your wife, she will have with each distribution or conversion a taxable and nontaxable part until the basis is used up because of the pro-rata rule. “

• So basically this means she has to convert the whole amount in her traditional to do backdoor Roth’s correct?  And she will pay pro-rata rules until it is empty?

Sorry @DanaB27 , just curious if my wife’s 2021 and 2022 8606 looked ok?

thank you!

[DanaB27]

Yes, your wife’s 2021 and 2022 Form 8606 looked ok.

If she is able to keep the 401k for all of 2023 and do a reverse rollover so that there are only the nondeductible contributions left in the traditional IRA, then you could convert the full amount left in the traditional IRA and the traditional IRA would be $0 on December 31, 2023. It is important that she can report a $0 value for Form 8606 on December 31, 2023.

 Then in 2024 she could rollover her 401k into the traditional IRA and only have the pre-tax funds in the traditional IRA. But she will have to check if she can keep the 401k until 2024 and if they allow a reverse rollover.

@dhuynh44 

[dhuynh44]

@DanaB27 

Thank you for the quick response.  If I remember ready correctly, the IRS cannot discern how much in her traditional IRA is nondeductible correct?  So even though we converted all of the $9080 (contributed in 2020 and 2021), the IRS still thinks $4856 (line 14 from 2022) is nondeductible?  So IF we do a reverse rollover we leave $4856 in her traditional to convert over to Roth?

What happens if we don’t do anything, but maybe rollover her 401k into this traditional IRA with the $4856 basis.  What happens when we try to withdraw when she is retired? 

thank you 

[DanaB27]

Yes, your wife’s unused basis is still $4,856.

Yes, you will leave $4,856 in the traditional IRA and do a reverse rollover with the rest. Then you will be able to convert the $4,856 to Roth IRA and use the basis up.

If you rollover your wife’s 401k to the traditional IRA then it will take longer to use up the $4,856 basis because of the pro-rata rule.

@dhuynh44 

[dhuynh44]

@DanaB27 

If you rollover your wife’s 401k to the traditional IRA then it will take longer to use up the $4,856 basis because of the pro-rata rule.

• So basically she pays the pro-rata rule until the traditional is $0?  Essentially this doesn’t make sense to rollover her 401k into her traditional bc it would increase the value tremendously and she would pay a lot of taxes to convert all to Roth?
• If she does decide to rollover her 401k into traditional, how does she get rid of this $4856 basis specifically?  Just convert $4856 and pay taxes on it in one shot?
• If she does not do a reverse rollover, what is the best thing to do with her 401k if she stops working and still has a basis in her traditional IRA?

Thank you