Roth IRA Backdoor conversion late in the year

[playalien]

I realized I made too much in 2022 to contribute to a Roth IRA while doing my taxes in March 2023. I had contributed the max $6000 to my Roth IRA. Once I realized I didn't qualify, I withdrew the $6000 as an over contribution for 2022 and redeposited the $6000 in an IRA for a contribution year of 2022. I then did the Roth IRA backdoor conversion, which I discovered doesn't target previous years, so now my $6000 was converted over to my Roth for 2023. While doing my taxes in Turbo Tax I followed the instructions on this post, Solved: Reporting excess Roth IRA Contribution (intuit.com). Now I want to know if I can re-contribute to my IRA for 2022 since technically, I never contributed to any IRA in 2022. I went to add funds to the previous year, but SoFi is showing that I already contributed to 2022, even though it's been converted to my Roth. Any help or link to an article explaining this would be appreciated. I had a hard time finding the one article that had my scenario. 

[DanaB27]

To confirm, you didn't recharacterize the Roth IRA as a traditional IRA contribution but instead requested the withdrawal of an excess contribution plus earnings and then made a new contribution for 2022 to the traditional IRA which you converted in 2023.

No, you cannot make another traditional IRA contribution for 2022, since you made the max contribution for 2022 when you made the new contribution to the traditional IRA. But you might be able to make a traditional IRA contribution for 2023.

You will enter the nondeductible traditional IRA contribution for 2022 on your 2022 tax return and have a 2022 Form 8606 with a basis on line 14 (which will be carried over to your 2023 tax return).

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. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
11. 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).

If you want to avoid amending your 2022 tax return you will enter the 2023 Form 1099-R with codes P and J for the return of the excess contributions plus earnings:

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 "Did you get a 1099-R in 2022?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter P and J
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2023 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 and removed the excess after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022")

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

Next year on your 2023 tax return to report the conversion:

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?" if you had any nondeductible contributions in prior years.
12. Answer the questions about the basis from line 14 of your 2022 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[playalien]

Thank you so much for getting back to me so fast! Yes, not knowing I could recharacterize, I just withdrew the $6000. I don't know how much earnings I had on the $6000, considering 2022 was a loss for most stuff, I assume I had just lost money.  I had 2 years worth of deposits to my Roth already. On SoFi I don't see a way to see what my $6000 contribution for 2022 did or didn't do, considering it was already mixed into the money that was there. Any advice there would be appreciated.

I posted the wrong link, this is the one I followed, Solved: Oops! Excess Roth contributions (intuit.com). That matches the instructions you just gave me. Thanks for that. I will review what you posted and ensure i did the correct steps in TurboTax. 

You said I may be able to contribute to my IRA in 2023 even though I did the backdoor to my Roth in 2023. Can you elaborate on that? 

Thanks so much!

[DanaB27]

Yes, if you didn’t make any direct IRA contribution for 2023 then you can make a traditional IRA contribution for 2023 as long as you have taxable compensation. The conversion to the Roth IRA isn’t an IRA contribution and won’t be entered in the IRA contribution section. You only enter the 2023 Form 1099-R next year on your 2023 tax return and indicate it was a conversion.

Yes, if you had a loss on the return of the excess contribution then you will enter the distribution amount in box 1 (contribution minus loss) and $0 in box 2a.

To confirm did you put money for 2022 into the traditional IRA? Or did you just withdraw the Roth contribution for 2022 and put it into a private account? Can you clarify what you mean by "I had 2 years worth of deposits to my Roth already. On SoFi I don't see a way to see what my $6000 contribution for 2022 did or didn't do, considering it was already mixed into the money that was there"?

@playalien 

[playalien]

I withdrew the $6000 from my Roth IRA as excess contributions for year 2022 and put that in a private account. Then I moved that money from my private account into a Traditional IRA for year 2022. Then I did the conversion, which isn't year specific. 

To clarify my other statement, I started my Roth 3 years ago, so I had contributions for 2020,  2021 and 2022. In 2022, I made too much that I didn't qualify for the Roth for that year. I didn't realize this happened until I started doing my taxes in 2023. I contributed $500 a month for all of 2022. I have no way of knowing how much of the 2022's $6000 contribution made or lost in my Roth during the year.  Since the whole market crashed in 2022, I assume I lost money on that $6000, but I have no way to tell. 

[DanaB27]

If you filed the correct form with your financial institution and requested the withdrawal of excess contribution plus earnings then they should have calculated any earnings or losses and sent you the distribution. If you received more than the contribution amount then you had earnings if you received less then you had losses. You might want to contact your financial institution to verify that this was processed correctly. 

"For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made." (Pub 590-A).

Yes, since you made a traditional IRA contribution for 2022 you will enter it with the steps mentioned previously. And will have a 2022 Form 8606 with the basis on line 14 and this will carry over to your 2023 tax return when you report the conversion.

@playalien 

[playalien]

Thank you for your help with this. With SoFi, you just had to request the $6000 as excess for the previous year and they just gave me $6000 in my money account. There was no calculation. SoFi isn't the best when it comes to some of these transactions. Even asking their financial advisors any questions and they constantly just told me to contact my tax advisor. So that's why I'm in this forum. I will contact them tomorrow to see what they say.