Why does doing a Backdoor Roth in 2024 vs 2023 make such a difference to my taxes?

[annielou]

I'm trying to figure out why doing my 2023 backdoor Roth contribution in 2024 versus within the 2023 calendar year makes such a difference to my taxes due.

I did a backdoor Roth contribution for the 2023 tax year, with both parts of the transaction happening in Jan 2024.

When I go to enter the original 2023 Traditional IRA contribution in the deductions section, I put the $6500 contribution down, and then one of the following questions is how much of the contribution was made after 1 Jan 2024. The correct answer is all of it, so I put $6500 in that box - this makes no change to my taxes due. However, out of curiosity I also tried putting 0 in that box - as if I had made the 2023 contribution in calendar year 2023. When I do this my taxes due go down significantly - a couple thousand dollars.

Why is this?? I was under the impression that in terms of taxes it makes no difference whether you make your IRA contribution in the "correct" year or before 15 April of the following calendar year?

[CatinaT1]

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[annielou]

I was not able to resolve this, and would love any substantive answers!

[DanaB27]

When you indicate that the contribution was made in 2024 then it will be deducted from your useable basis in 2023. You can see this on Form 8606 lines 4 and 5. Therefore, it will affect the calculation for the nontaxable part of the conversion you made in 2023 (reported on the 2023 Form 1099-R) and then affect the amount of tax due. If you indicate that you made the nondeductible contribution in 2023 then your nontaxable portion will be bigger and therefore the taxes due are reduced.