By Dr. Jim Dahle, WCI FounderEvery March and April I am absolutely inundated with Backdoor Roth IRA questions. This year was no different and I found my prior post on 17 Ways to Screw Up a Backdoor Roth IRA to be inadequate. Not only are you guys incredibly good at finding new ways to screw Backdoor Roths up, but that post focused too much on the errors and not enough on the solutions once the errors have been made. I haven't given up on prevention, but I am now focusing more on treatment.
For a process that seems so incredibly simple to me, it can be amazing all the different ways to screw it up. In 2019, I noticed a couple of trends in the questions I was getting that probably deserve some time on the blog. Before we get into them, let me explain the VERY SIMPLE way to do a Backdoor Roth IRA. There are essentially six steps. I'll go over them and then go over how to fix errors that occur with each step.
6 Steps to Successfully Contribute to a Backdoor Roth IRA
- Step #1: Contribute to traditional IRA ($6K, $7K if 50+ for 2019).
- Step #2: Invest the money in a money market fund.
- Step #3: Move money from traditional IRA to Roth IRA (i.e. a Roth conversion).
- Step #4: Invest in your preferred investment (typically a stock, bond, or balanced index mutual fund).
- Step #5: Ensure you have no money in a traditional IRA, SEP-IRA, or SIMPLE IRA on December 31st of the year you do the CONVERSION step.
- Step #6: Report the transactions correctly on your taxes by filling out Form 8606.
Seriously. That's it. If you can do a cholecystectomy, you can do this. If you can work up a pulmonary embolus appropriately, you can do this. If you can manage hypertension well, you can do this. If you can fill a cavity, you can do this. Super easy.
However, people still manage to screw up on EACH of those six steps. Let's go through the mistakes people make, step by step.
How to FIX Backdoor Roth IRA Mistakes
Step #1 Error: Contributing Directly to a Roth IRA
An error that commonly occurs with a first Backdoor Roth IRA is that people simply don't realize that their income is too high to do a direct Roth IRA contribution. So instead of doing it indirectly (i.e. going through the Backdoor), which is no big deal even if you're under the limit, they contribute directly to a Roth IRA. Then they realize their Modified Adjusted Gross Income (MAGI) is over $137,000 ($193,000 Married Filing Jointly) for 2019. Now what?
Enter the Recharacterization
Well, now you have to recharacterize the Roth IRA contribution to a traditional IRA contribution. This basically makes it as though you never contributed to a Roth IRA but contributed to a traditional IRA instead. You usually have to call your IRA provider to get this done, but it's no big deal.
You have until the due date of your tax return to do this (including extensions). So if you did an IRA contribution in January of 2018 for the 2018 tax year, you have until October 15, 2019 to do a recharacterization. There's no penalty or anything to do it. You can do the opposite as well if you contributed to a traditional IRA but meant to contribute directly to a Roth IRA.
Bear in mind that starting in 2018, you can no longer do recharacterizations of Roth CONVERSIONS (not contributions). This eliminated the “Roth IRA Conversion Horserace” technique for tax reduction.
Until recently, I had thought there was a waiting period after a recharacterization to then reconvert the money to a Roth IRA. However, that rule was only for recharacterizations of conversions, not contributions. There has never been a waiting period for a recharacterization.
Any gains that occur before the final conversion are, of course, fully taxable at your ordinary income tax rate in the year of the final conversion.
Step #2 Error: Not Investing in a Money Market Fund in the Traditional IRA
I ran into a new issue this year from a couple of people. What happens if you LOSE money in between the contribution and conversion step? This problem is easily avoided by using an investment like a money market fund that does not go down in value for that time period, but some people fail to do so and end up losing money. When they work their way through their IRS Form 8606, they discover they have basis left over that they can then carry forward indefinitely for years! No big deal, it just makes your paperwork more complicated. Perhaps at some point in the future you'll do a Roth conversion of tax-deferred money and this carry forward basis will reduce the tax on that event.
What if you MADE money in the account between contribution and conversion? This actually happens most of the time, so I wrote an entire post on it called Pennies and the Backdoor Roth IRA. Technically, any money earned between the contribution and conversion step is fully taxable at ordinary income tax rates in the year of the conversion. If it is less than 50 cents, you just ignore it. More, you report it on your 8606 and pay taxes on it.
If it is still in the traditional IRA, either do another tiny Roth conversion or leave it there until you do next year's Backdoor Roth IRA process, either is fine. If you were smart and just used a money market fund and did the conversion as soon as your IRA provider allowed it (usually less than a week and sometimes as early as the next day), this won't be much money and there won't be much tax due.
Step #3 Error: Forgetting to Do the Conversion
If you were dumb and forgot to do the conversion step for eight months afterward, it could be a huge gain you're paying taxes unnecessarily on. No way to fix this one, just pay your stupid tax and move on.
Step #4 Error: Forgetting to Invest the Roth IRA Money
Even worse than paying taxes on a huge gain, is not getting the gain in the first place because you left the money sitting in cash for months. No way to fix this one either. Your “stupid tax” this time comes in the form of opportunity cost. Just get the money invested ASAP to stop the cash drag. Maybe you even got lucky and the market went down in between contribution and investment so now you get to buy low.
Step #5 Error: The Pro-Rata Rule
Some of the most common questions I get are from people who make a late contribution to a Backdoor Roth IRA. What do I mean by late? Well, you are allowed to make an IRA contribution AFTER the calendar year ends. In fact, you have until tax day, usually April 15th unless you get an extension of up to six months. While it is to your advantage to contribute to retirement accounts as quickly as possible so that money can start compounding in a tax-protected way, I understand that we all have lots of good things to do with our money and sometimes this gets pushed back into the next calendar year. All it really does is complicate your paperwork a bit.
For example, if you made your 2018 IRA contribution in April 2019, instead of reporting both the contribution and the conversion on your 2018 taxes, you would report only the contribution there. The conversion would be reported on the taxes for the year you did the conversion, i.e. your 2019 tax return due in April 2020. Your 2018 IRS Form 8606 becomes a little simpler and your 2019 IRS Form 8606 becomes a little more complicated. Not a big deal if you can follow the simple instructions.
What confuses people, however, is the pro-rata rule. This is the rule that says you need to empty out your traditional IRA by December 31st of the year you do the conversion. Since these folks have never filled out a Form 8606 (or apparently read the instructions) they assume that for a 2018 contribution they need to have a balance of $0 at the end of 2018, even if they didn't do the conversion step until 2019. That's simply not the case. The pro-rata rule isn't applied until the year of the conversion, i.e. December 31st, 2019.
Emptying the IRAs
So how do you empty out those IRAs? You usually have two choices.
- Do a Roth conversion of the whole thing. This is what I generally recommend for small IRAs where the tax bill on the conversion would not be too onerous. It is quick, easy, and increases the amount of tax-free assets you have.
- Roll the money into a 401(k) or 403(b), either that of your current employer, that of a past employer, or to your own individual 401(k) if you are self-employed. This is usually a better option if you have a large IRA where you would rather deal with the hassle than pay the tax bill during your peak earnings years.
So how large is large and how small is small? Well, it's going to vary by the person and how much disposable cash they have. Most would consider an IRA under $10K to be small and an IRA over $100K to be large. In between, it's a personal decision as to which would be better for you.
What If You Didn't Empty the IRA?
So what if you screwed this one up? Well, your Backdoor Roth IRA conversion step just got pro-rata'd. There is a tax bill associated with that because most of your conversion was of tax-deferred money rather than post-tax money like it was supposed to be.
The fix for this is going to vary by the individual, but the easiest fix is to simply convert the entire IRA to a Roth IRA now, so you end up getting all your post-tax money into that Roth IRA. Another possible fix is to figure out a way to separate your basis in that IRA, roll the tax-deferred money into a 401(k), and then convert the basis left behind in the IRA.
Do yourself a favor and just empty the darn IRA by December 31st. Keep in mind that this is usually not an instantaneous process, so don't put it off until you're on holiday break at the end of the year.
Step #6 Error: Screwing Up the Tax Forms
Both individual taxpayers and professional tax preparers screw up IRS Form 8606 all the time. In fact, some of them haven't even heard of a Backdoor Roth IRA. (Incidentally, this is one of the best questions to ask while interviewing a potential tax professional—”How many backdoor Roth IRAs did you help last year?”)
The usual fix to this error is to file a 1040X (Amended Tax Return) and a new Form 8606. You can do this for the last three years if necessary. If you didn't file Form 8606 at all, you'll definitely want to do this. The key is to check lines 15c and 18 on Form 8606. They should both be a number very close to zero if the form is being completed correctly.
The tax preparer should NOT be filing Form 5439. If you did steps 1-5 right, this form probably doesn't belong in your tax return.
A lot of people wonder about the 1099-R sent to them by their IRA provider and worry that it was done wrong and that it will cause them to pay tax they shouldn't have to pay. Sometimes the form was filled out wrong, but mostly this is just a lot of anxiety. What gets people anxious is finding something on Line 2a “Taxable amount”. As long as the box on Line 2b is also checked “Taxable amount not determined”, you're golden. Don't worry about it. If it is not, have the IRA provider send you a new, correct form, either with $0 in 2a or the box in 2b checked (usually the latter). Here's what mine looks like every year from Vanguard:
Note that Box 2b is checked, even though they are reporting a taxable amount of $5,500.07 to the IRS.
Again, if you're not sure how to enter this into Turbotax, check out Harry Sit's excellent tutorial. I still occasionally refer to it myself.
Still Confused About the Backdoor Roth?
I wish Congress would just lift the rule against direct Roth IRA contributions for high earners and save us all this hassle, but who knows if that will ever happen.
- Need more help with a Backdoor Roth IRA? Here is my Backdoor Roth IRA Tutorial (along with 1800 comments on it).
- If you did your contribution after the end of the year, check out Late Contributions to the Backdoor Roth IRA.
- The Physician on FIRE walks you through a step by step Backdoor Roth IRA at Vanguard.
- Harry Sit walks you through reporting the Backdoor Roth IRA in Turbotax.
- Here is my prior post on 17 Ways to Screw up Your Backdoor Roth IRA.
- You can hire a professional to help you, either a good financial advisor or a good tax strategist can assist.
- You can also ask your peers for help on the WCI Forum, the Private WCI FaceBook Group, and the WCI Subreddit.
What do you think? Which Backdoor Roth IRA mistakes have you made? How did you fix them? What errors do you see others making? Comment below!
Hello dear White Coat Investor friends,
Thank you in advance for helping us with questions and advice!
My question is as follows: My former company offered us the option to receive our pension balance in the form of a lump sum at this time. I would like to do that since I can invest the money at a better rate but since I am still in my 40s and don’t want to commence benefit distributions yet, I am wondering where to roll it over to. I don’t have an IRA account and the company that has my 401k account from the former employer doesn’t accept rollovers into my 401k as I am not with the company any more.
I am between jobs at the moment and don’t have a 401k with a current employer.
The lump sum offer is valid through the end of the month so I cannot wait to start in a new job and then roll over to that 401k.
I do the Backdoor Roth conversion every year and because of the pro rata rule I hesitate to roll over the pension lump sum to an IRA.
What other options do I have that you would recommend instead?
Thanks so much!!
You can either get another job and roll it into that 401(k), or roll it into an IRA and quit doing BD Roth IRAs for now. Or leave the pension where it is. I’m not seeing any other choices.
Your next job will probably have a 401(k), so why not roll it to an IRA for now since there’s a time crunch and then when you get access, roll that into the new 401(k). You might get pro-rated for one year of BD Roth IRA, but that’s not the end of the world.
Hello,
I hope you can help me before I make any mistake. I rolled over my old employer 401k into rollover IRA years ago to a brokerage acct and it is somewhat large. (pre-tax) I am trying to empty out this as you recommended so I plan on rolling that money into my current employer 457 before Dec. 31st, 2020. I was thinking of opening non-deductible IRA and funding it in Jan 2021 for Backdoor Roth contribution for 2020. Then I read this portion of your post and I am confused.. When is the best time to open and fund for 2020 after I emptied out the existing money? Can you clarify what you mean? If I emptied out by Dec 31st, 2020 and fund it in Jan 2021 for Backdoor Roth 2020, I won’t be affected by “pro-rata rule”? Thank you so much.
“For example, if you made your 2018 IRA contribution in April 2019, instead of reporting both the contribution and the conversion on your 2018 taxes, you would report only the contribution there. The conversion would be reported on the taxes for the year you did the conversion, i.e. your 2019 tax return due in April 2020. Your 2018 IRS Form 8606 becomes a little simpler and your 2019 IRS Form 8606 becomes a little more complicated. Not a big deal if you can follow the simple instructions.
What confuses people, however, is the pro-rata rule. This is the rule that says you need to empty out your traditional IRA by December 31st of the year you do the conversion. Since these folks have never filled out a Form 8606 (or apparently read the instructions) they assume that for a 2018 contribution they need to have a balance of $0 at the end of 2018, even if they didn’t do the conversion step until 2019. That’s simply not the case. The pro-rata rule isn’t applied until the year of the conversion, i.e. December 31st, 2019.”
Most 457s can’t/won’t take an IRA rollover. I don’t know if any can. Check on that first.
To avoid being pro-rated, you need to have an empty IRA on 12/31 of the year you do the conversion step. It doesn’t matter what year you do the contribution step. I prefer to do the contribution and conversion during the calendar year to simplify paperwork, but you don’t have to.
Hi and Thanks for all the information. To be clear, this past March 2020 I had an IRA worth $1,050,000 with a cost basis $50,000 (as per form 8606). I moved (rollover) $1,000,000 to my 401K, leaving me with $50,000 in the IRA. Then I moved the $50,000 from the IRA over to a Roth IRA (the amount I put in after many years, per form 8606) a month later in April 2020. My plan is when I do my 2020 taxes I will not be paying any addition taxes from moving this money around. Is this all correct?
Thanks, Drex88
Yes.
You lost me at “For example”.
Hi Jim- thanks for all your tutorials and advice on the back door Roth. In 2019 I rolled over a previous tax deferred employers retirement account to an IRA and then converted the full amount to a Roth IRA in Jan 2020 (a taxable event). I have 0 dollars sitting in my current traditional account. Can I still contribute 6000 to my traditional account and convert to a back door Roth IRA in the same year? I’m wondering if the prior conversion from the rollover this year will mess up my 8606 when it comes to doing the back door Roth in the same year. Thanks!
I wished I knew about this post a long time ago. Instead, I’ve discovered all this on my own.
I still have a question.
After deposited my after-tax money to my IRA, but before I can move it to Roth IRA (RIRA) acct, my account earned $0.01, and over the years it’s accumulated to the current balance of $0.09.
Each year, when I do the backdoor RIRA conversion, I chose to move “exactly” $7,000.00 instead of “all” because the money while sitting in IRA earned $0.01 and I though that if I move even 1 cent more than the maximum IRS limit of each year, say $7000.00 for 2020, then I would be violating the maximum contribution rule. However, you mentioned that I would have to zero out the IRA account. It seems like a contradiction exists here between the need to zero out the IRA account each year, and the need to stay at or below IRA limit for IRA, and Backdoor RIRA. That’s, it seems to boil down to the question whether the Backdoor RIRA conversion has to stay within IRS’ IRA/RIRA limit or not (due to earned interest while the fund is in IRA being processed to be converted to RIRA).
Would you help clarify this situation?
Thanks so much!
Regards,
Cuong
There is no limit on conversions.
This post addresses your issue:
https://www.whitecoatinvestor.com/pennies-and-the-backdoor-roth-ira/
Hi! I’m guilty of step #3 and step #5 errors, but in a twisted way in which I still would like/need help with. I’m a resident so I had a straightforward account of just direct Roth IRA contributions until 2019 when I got married and now I needed to do the Roth. Here’s what I did (it’s bad…), complicated moreso due to the extended 2019 tax covid deadline of July 15,2020.
1) July 7, 2020: $6000 contribution (for 2019 tax year) to traditional IRA (new IRA, no other IRAs aside from my pre-existing Roth IRA)
2) July 9, 2020: $5978 conversion to Roth (traditional IRA now $0 balance)
3) July 15, 2020: Filed 2019 taxes including form 8606 per your procrastinator instructions
4) Dec 30, 2020: $6000 contribution (for 2020 tax year) to traditional IRA.
– Dec 31, 2020: Traditional IRA balance is $5991
– Today Jan 13, 2021: Traditional IRA balance is $6100
QUESTIONS
– What should I do now regarding my 2020 roth conversion step? Should I convert the $6100 asap? Or wait and do it next year?
– I totally screwed the part where you always say make line 6 = $0. Does that mean I have to put $5991 on line 6? What are the tax implications/am I paying tax again on the whole $5978 conversion I did in July 2020 (already post tax money :/)?
PS THANK YOU for your amazing blog!!! And yes, I’ll be changing my traditional IRA to MMF to prevent the discrepancy between contribution & converted amounts 🙂
Well, you’re going to get prorated. Not a huge deal as it’ll all be cleaned up by the time your 2021 taxes are filed. But yes, go ahead and convert the $6,100 now. You just need to follow the instructions and realize that what you lose in 2020 in extra taxes to pay you’ll get back in 2021. The loss will make your paperwork going forward be a little funky of course. Maybe you can offset it with a gain one year and get rid of it.
Thanks for the input, converted! Now I have even more to look forward to in April…
I made common mistake #1… In 2019 I contributed $6000 for me and $6000 for my wife to a ROTH IRA, then in 2020 realized I earned too much and should have gone through the back door. In January of 2020 I recharacterized the $12000 plus earnings (ended up being $6643.20 and $7019.98) to traditional IRA and then converted the total to ROTH IRA. My 8606 for 2019 (from TurboTax) was as follows:
1) 6000
2) 0
3) 6000
14) 6000
I understand that I am going to have to pay taxes on the earnings ($643.20 and $1019.98) this year, however I tried entering the 1099-R’s that I received in TurboTax for 2020 and TurboTax is telling me I need to go back and amend my 2019 return. I think there must be a mistake here. Any ideas where I’m going wrong? Thanks for the help
Worst case scenario, you can go into Forms mode (might be on download version only) and manually fill out the 8606 using overrides.
I’m not sure I know Turbotax well enough to know exactly how you keep the software happy in this scenario. Be sure you read this:
https://thefinancebuff.com/how-to-report-backdoor-roth-in-turbotax.html
You should not have to amend the 2019 return
Tony, I just asked the same question as you today (before i saw yours!) I’m using HR block and got the same message about amending last year’s return. I searched around more on this site and I think I found the answer on this page https://www.whitecoatinvestor.com/late-contributions-to-the-backdoor-roth-ira/ . If you look at the amounts he penciled in on the 8606 in the right hand margin, you will see he entered the original contribution as basis in his IRA. I did this in my software and it then correctly taxed only the earnings. Please anyone correct me if I am wrong!
Thanks Martha and WCI for sending that link. I checked my 8606 forms from 2019 and 2020 with the WCI forms and TurboTax is still telling me I need to amend my 2019 taxes. I called TurboTax and they were unhelpful. The rep I spoke with said that I need to report the gains on the 2019 contributions (gains between the 2019 contribution and the 2020 recharacterization and conversion) on my 2019 taxes, however I don’t think that is correct. My 8606 form from 2020 is showing the gains on Line 18 (taxable amount), thus I assume I’m paying taxes on these gains in 2020. Even if I did have to amend my 2019 taxes, I wouldn’t even know what to amend… as far as I can tell my 8606 form for 2019 is filled out correctly (and matches the WCI example form). I honestly think TurboTax is just wrong about needing to amend my 2019 taxes… I wish they had someone at TurboTax who could help me with this. Frustrating that even TurboTax reps aren’t really familiar with backdoor ROTH.
If you recharacterize a Roth IRA contribution to a traditional IRA contribution for 2019 and don’t do the conversion until 2020, then you shouldn’t be paying any taxes on it on your 2019 taxes but will pay taxes on any gains between contribution and conversion in 2020.
Hope that helps.
Are you trying to enter the 1099 with the code “R”? HR block program told me that was for tax year 2019. I didn’t need to amend my 2019 return because I did report the contribution on it. Just don’t enter the 1099 with the code R and hopefully that will fix it.
Actually I received four 1099R forms for 2020. Two for me and two for my wife. Each of us got one for the re-characterization and 1 for the conversion. The two recharacterization 1099R’s have the code “R” on them so I think I need to report these forms on my taxes with the code R as well, right?
The Turbotax rep that I spoke with last night called me back (at like midnight haha) and said that Turbotax thinks that the recharacterization was done in 2019, thus it thinks I should pay taxes for the gains in 2019. I don’t know why Turbotax thinks this since the code “R” specifically signifies a 2019 contribution that was recharacterized in 2020. Ultimately I haven’t found a way to get Turbotax to stop telling me I need to amend my 2019 taxes, so I’m just going to file my 2020 taxes as is and hope the IRS doesn’t come knocking.
In HR Block, it would not let me enter the 1099 with the code R. It told me that this was for the 2019 return. So I only entered the others. I double checked my 2019 return, and I had already included these amounts on line 1 of the 8606. Check your 8606 for your 2019 return. If you have already entered these amounts, I don’t think there would be any amendment to this return needed.
Look also at line 14 on your 2019 Form 8606. Mine shows the contribution as basis. Make sure you enter this basis on the 2020 taxes, and everything should compute correctly. I am not a tax professional, but that’s what seems correct to me.
Thanks so much for your advice. Not sure why but I don’t see my previous thread on this website, perhaps it somehow got deleted or moved?
I know I’ve seen a website before (perhaps even on WCI?) that details exactly what the 8606 should look like for someone in my position (i.e. contributed to ROTH during one tax year, recharacterized and the converted back to ROTH during the next tax year while also making another full contribution to backdoor ROTH for that year). Do you by chance recall a link for such an example showing 8606’s for each of these years? I know I’ve seen it online somewhere but can’t seem to find it.
Thanks again for your help!
Not sue what happened to your other post. I don’t see it in spam or trash and I didn’t delete it. I think you’re talking about this post:
https://www.whitecoatinvestor.com/late-contributions-to-the-backdoor-roth-ira/
Thank you for discussing ERROR #2 at some length. The original “how to” article I read last year (written by someone else) was helpful, but it didn’t specifically recommend putting the initial investment into a money market fund. I lost about $1100 in the time it took to convert my investment to a Roth. (I kept it in the same Vanguard large cap throughout the entire process). Everything has bounced back quite nicely, but I was wondering how to handle the $1000 loss. I was really hoping that since a GAIN would be taxed, perhaps a LOSS would offset my other investments. From the sounds of your article, it appears as though I can only record this loss as a “basis,” and maybe one day in the future I can use it to ease the tax burden on a deductible IRA conversion (ease the Pro Rata sting). I hope Turbo Tax knows how to walk me through this. Anyhow,…GREAT article!
Yea, that’s a messy paperwork problem. You basically now carry it forward forever on your 8606s. Might be easiest to leave some money in a traditional IRA for a year or two until the gains equal slightly more than $1,000 and then convert it to a Roth IRA tax free with the loss offsetting the gain.It won’t affect how much you have, but it will affect the paperwork.
What about a loss on an after-tax 401K in plan roth conversion? How is that reported, if at all?
It’s a mess. That’s why it is best to leave assets in cash until the conversion. You basically carry that loss forward, perhaps until the end of your days, along with the requisite paperwork hassle. Happens with IRAs all the time and is carried forward on Form 8606. Almost worth getting some gains in the IRA prior to the next conversion just to get rid of that loss!
I’m not sure how my 8606 this year should be filled out. I realized we went over the Roth limit for 2019 in Feb 2020. I recharacterized the contribution and then promptly did a backdoor conversion. HR block software had us attach a statement on our 2019 taxes. At the end of 2019 and 2020 we had nothing in traditional IRAs. I received a 1099R for $7711 with code “R” from the Roth, and a 1099R with code 2 for $7712 from the traditional. Do I list the original 7000 contribution as basis? If I report basis as $0, HR Block software calculates tax on the whole amount. We did not do a backdoor Roth for 2020 tax year.
I think if I am interpreting this correctly on this page https://www.whitecoatinvestor.com/late-contributions-to-the-backdoor-roth-ira/ I should report the original contribution as basis. Correct me if I am wrong. Thanks!
Yes, basis is the after-tax money, i.e. the original contribution.
Yes, basis would be $7000. So you’ll owe taxes on $771 on your 2020 taxes. The contribution goes on the 2019 8606 and the conversion goes on the 2020 8606.
WCI,
Thanks for the helpful tips. Just for my education, why is it OK that in box 2a of the Vanguard 1099R it has a taxable amount but if it is “x” or “indeterminate” in box 2b? 2a clearly states that it is a taxable amount.
JPM
Beats me, but that’s the way Vanguard has done mine every year.
I converted $7,800 to Roth this year. $1,800 was slapped into me because the $6,000 sat in the Roth account for too long while the portfolio grew. I did this conversion from my IRA Rollover account. I am also planning to leave my job this year. I would need to roll over my pension funds into Roll over IRA or my company’s 401K plan. My company’s 401K plan accepts pension rollovers. It sounds like per IRS guidelines, if I roll over my pension funds into my IRA Rollover account from which the Roth conversion took place this year, I would have adverse tax consequences for the Roth conversion amount, meaning my basis for Rollover would change making most of $7,800 taxable and also pushing my AGI up for this year. Since my company’s 401K plan accepts my pension distribution, should I Rollover my pension to my 401K instead? Does this trigger the same tax consequences as rolling pension into Rollover IRA?
Thank you so much!
The basis wouldn’t change but you would be prorated. Yes, I’d roll it over to the 401k so you don’t get your conversion pro-rated.
In 2020, I contributed $600 too much in my Traditional IRA and it was put in my Roth IRA via back door. Looking to find some help on the steps of fixing this before doing my 2020 taxes
Well, you can no longer recharacterize conversions so this is going to be a tough combination of screwups to fix. I’d start by calling your custodian and asking them why they let you put $600 extra in your IRA and seeing if you can get them to somehow reverse it. Maybe you can get them to call $600 of your contribution a 2021 contribution instead of a 2020 contribution. This would be easy if you made it in early 2021, but I’m not sure what you will do if you made it in calendar year 2020 and they say no. The penalty is 6% per year of that $600.
Another idea is to get them to recharacterize your traditional IRA contribution to a Roth IRA contribution. Then pull the $600 back out. Then recharacterize what’s left as a traditional IRA contribution and reconvert it.
Let us know how it works out.
WCI – Thank you for responding. So, I have two Roth IRAs with two different brokers. One I invest in mutual funds and one I invest in equities along with CALLs and PUTs. That is why neither new I accidently funded one too much.
I did fill out a recharacterize form to have the $600 moved from the Roth back to the IRA. Then attempt to move the $600 to 2021 or simply pull it out as you suggest. I will see how that goes but it sounds like a recharacterize is no longer allowed.
If I can’t get it done as described above, I may have to pay the stupid tax and go to a professional tax person for my 2020 taxes. I won’t make this mistake again! I will keep you updated. Thanks! t.
I really screwed up and regardless of how many times I read your examples they are just off by one so I can’t seem to get my sheet to work.
I did my 2019 Traditional IRA contribution on Dec 31, 2019.
I converted my 2019 traditional IRA contribution into the Roth on April 24, 2020.
I did my 2020 Traditional IRA contribution on Jan 27, 2021.
I converted my 2020 traditional IRA contribution into the Roth on Jan 29, 2021.
I just realized I never filled out for 8606 for 2019 and I can’t figure out what I am supposed to fill out how for this.
For my 2020 taxes, I think I need to put down my 2020 contribution and my 2019 conversion that happened in 2020 but I don’t know what my cost basis is supposed to be since as of Dec 31, 2019 I did have 6000 sitting in the traditional.
Please help 🙁
You need to file a 2019 1040X with an 8606 showing your 2019 traditional IRA contribution.
On your 2020 taxes, you need to file an 8606 showing a 2020 traditional IRA contribution and the conversion you did in 2020.
On your 2021 taxes, you will need to show the conversion you did in 2021.
Your cost basis (line 2) on your 2019 8606 is probably $0 based on what you’ve told me. This assumes there was no after-tax money (i.e. basis) in your IRAs on Dec 31, 2018.
On your 2020 8606, your basis will be $6,000.
Hope that helps.
Yes! That makes sense.
Thank you soooo much!
Hi there, thanks for all you do trying to clarify something that seems so easy, yet also seems so easy to screw up with respect to tax filing. I’m no neurosurgeon, but I am an internist, and I would think I could get this right, but I’ve been working on it for hours today, and I can’t seem to figure it out. The way I did my spouse’s backdoor Roth last year is killing me this year. I’ve made a combination of errors that you highlight which together are making it a bear to file this year’s taxes.
Here’s my scenario:
Despite doing the backdoor for years, in March of 2020, I accidentally put $6000 directly into my wife’s Vanguard Roth account for the 2019 contribution. I realized the mistake quickly and within a week or so I had recharacterized into a traditional IRA. (As an aside, for reasons that Vanguard explained to me, and which I briefly understood, but which I can’t remember now, despite having $6000 in a money market account, when recharacterized the total was reduced to $5793. ) I then made my second mistake and took that $5793 in the traditional IRA account and proceeded to invest it in a 2045 target account which grew to $7787 by December of 2020 when I did a conversion back to a Roth account. I did the 2020 year contribution correctly in December by putting $6000 into a money market into the traditional IRA and then converting a week later into the backdoor Roth.
My wife’s 2020 1099 form has 3 distributions listed on it for 2020, the $6000 I did correctly the easy way, the $7787 which are both listed as “contributory IRA”. Then the $5793 is listed as “Roth IRA” with a taxable amount of 0 and a distribution code of R on the form for the recharacterization. When I enter the 1099-R data which includes the $5793 into Turbo Tax, it states that I need to amend the 2019 returns, but I’m not sure what to amend.
Her 1099-R for 2019 tax year looks as follows:
1. 6,000
2. 5,500
3. 11,500
4. 6,000
5. 5,500
6. 0
7. 0
8. 5,503
9. 5,503
10. .999
11. 5,500
12. 0
13. 5,500
14. 6,000
15. 0
16. 5,503
17. 5,500
I’m trying to do the taxes on Turbo Tax which always seems to make the Roth more complicated than it needs to be, but any help or guidance you could provide would be immensely appreciated. I can guarantee you, I will be following your advice on putting in a lump sum each year for the year from now on. In fact, I think I’ll get on the 2021 process right now.
Thanks so much,
Adam from Denver.
Did you get line 2 right? That’s the usual place mistakes are made. You haven’t given me enough information to know how to fill out a 2019 8606 because you didn’t say what you actually did in 2019. I suspect you’re mixing what goes on the 2019 form and what goes on the 2020 form and maybe messing up line 2 as well.
Sorry, and thanks for your help. Two amendments to the original post. The lines 1-17 are actually my wife’s 8606 from 2019 tax return, not her 1099-R as I initially indicated. So line 2 is 5,500 on the 2019 8606. Second, in review a bit more yesterday, I actually made the 2019 contribution incorrectly to her Roth in December 2019 and recharacterized in March of 2020, so it was actually a few months before I caught the error, not a few weeks, and spanned the change of the calendar year. Is that helpful?
I don’t think the recharacterization will change things at all, no. But I still don’t have enough info to fill the form out for you. I don’t know what happened in 2019. There isn’t that much info that goes on the form. Basically there is:
1) Any contributions made for 2019
2) Any conversions made in 2019
3) The balance of any traditional, SEP, and SIMPLE IRAs on 12/31/2018 and 12/31/2019, and the amount of that balance that is pre-tax and after tax.
With that info, it’s easy to fill out the forms. Without that info, it’s impossible. You posted what you put on the form and asked for help with it, but you haven’t given me enough information to really help.
OK, thanks so much. I’ll try one more time and then I’ll let you be. I’m sure you have better things to do than help out someone who made such a mess of this process, but I do really appreciate your assistance.
In March of 2019, I placed $5500 in my wife’s Traditional IRA account for the 2018 calendar year, then converted $5502 at the time to Roth IRA in early April 2019, again for the 2018 calendar year.
In December of 2019 I made an error and contributed $6000 to her Roth IRA first for the 2019 calendar year. Caught that mistake and recharacterized in March of 2020 (for reasons that remain somewhat mysterious to me but I think have something to do with pro rata or total account value) Vanguard placed $5793 into her Traditional IRA at that time. Invested that into a target fund in the Traditional IRA and converted back to a Roth in December of 2020 but value was $7787 by that time.
Her traditional IRA account balances were $0 on 12/31/2018 and 12/31/2019, and she doesn’t have any of the other IRA types.
Based on what your message says
1) Any contributions made for 2019-($6000 I think)
2) Any conversions made in 2019- ($5502, I think)
3) $0
Does this seem right and does Form 8606 seem to match?
Thanks again for your insight and expertise.
Remember you don’t do conversions for a given year. You do conversions IN a year. So any conversion done in 2019 goes on the 2019 8606 even if the money you converted was contributed in 2018 or in 2019 for 2018.
Her 2019 8606 should include a $6,000 traditional IRA contribution and a $5,502 conversion.
Her 2020 8606 should include a $7,787 conversion and possibly a contribution if you made one for 2020. You should only owe taxes on $1,787 of that conversion.
Hope that helps.
Thanks in advance for any help, I’ve been reading through your replies and a couple of your articles now and I was just hoping for some clarification on my situation because I confused even the TurboTax person I talked to on the phone!
March 2020 – I converted 6K from my only rollover traditional IRA to a Roth IRA (all w/ Fidelity), at this point I didn’t know about backdoor or the MAGI limit, and I left 1500 in the traditional IRA.
July 2020 – Do 2019 taxes w/ TurboTax, report the 6K (as I thought I was doing calendar year max) in the new Roth IRA, get told I’m over MAGI limit and can’t contribute and will be taxed until its removed. Looking at my 2019 generated return, TurboTax submitted a form 5329 (no 8606) for additional taxes and included all 6K of my conversion as being eligible.
In order to get this corrected to a backdoor Roth (since it was converted from my rollover traditional IRA), it appears I will need to:
Submit a 1040x for 2019 w/ an 8606 only for the 6K contribution
Since it was in March, my 2020 return will also have an 8606 but only for the conversion
My problem, however, is that I did not drain my rollover traditional IRA that I did the conversion from, and it’s grown in value (now 3K), and the value of my Roth has grown to 10K (no contributions, just portfolio growth), to make things even more complicated, I was awarded another rollover 401K from another employer this month, March ’21, totaling 4K. (so now I have two traditional IRA rollovers w/ balances above 0, including the one I converted 6K to a Roth)
What’s the most straightforward way just to make sure I’m reporting everything correctly (regardless of tax impact) – do what I suggested above, and covert the remaining amount in each traditional IRA to my current company 401K? What do I report on my 2020 (that I’m doing now) 8606 form? Thank you in advance for any advice!
You sure are making your life hard by doing all this. But you’re the 5th person today asking questions about situations like this. Was there anything I could have written or said on the podcast that would have kept you from doing this?
At any rate, simply report what you did each year on that year’s 8606. You don’t give me enough information to know how to fill out all your 8606s, so without more info or a specific question, I’m not sure how much I can help.
It sounds like you reported a 2020 conversion as a 2019 contribution on your 2019 taxes. So you’ll need to file a 2019 1040X with an 8606 showing what you actually did.
Yes, your 2020 taxes will also include an 8606. Information on that form will include your IRA balances at the end of 2019, your 2020 IRA contributions and all conversions done in 2020. Your 2020 conversion will be pro-rated due to that $1500 you left in the IRA. And if you don’t do something with that new IRA (IRA right, not a 401(k)?) you’ll get prorated on your 2021 taxes too.
Yes, I would convert it all to a Roth IRA right now. I would do your 2021 Backdoor Roth IRA process at the same time. Then, finally, in 2022 you’ll have a pretty clean looking and straightforward 8606/backdoor Roth IRA.
Thank you for the reply, you’re very helpful! After I posted this I re-read your backdoor Roth tutorial (https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/) and came to the same conclusions in your comment; I know I made this one difficult, I literally didn’t know about a backdoor Roth or MAGI and assumed it was OK for me to simply convert some of my traditional IRA money to a Roth…it was only after realizing I was over the MAGI and doing some more reading that I found your tutorials and more info, and that was after my 2019 taxes were already done!
I’ve started an amended 1040X for my 2019 return to make sure it has an 8606 that’s correctly filled out for my March 2020 conversion, so that my 2020 return will have the correct amounts on THAT 8606, and I’ll have to reflect the remaining balance in my (at the time) single traditional IRA that was left over from the conversion earlier that year. After re-reading your tutorial, I planned on doing just as you said and converting all of the remaining amounts in my two traditional rollover IRA’s (yes, not 401k) to Roth for 2021, and handling the contribution and conversion for both in 2021, so that hopefully 2022 is finally a clean slate.
Thanks again for your help, I probably should have taken another read through your tutorial before I posted, but your replies are more clarifying and helpful than I’ve been able to get out of two CPA’s now (neither of whom knew what an 8606 was, hah)
I’m having a difficult time figuring out how to fill out form 8606. In 2020, I decided to contribute to IRAs for the first time. I was in the time frame in 2020 to contribute $6K for the 2019 and 2020 taxable years (I had already filed 2019 taxes though). My initial plan was to do back door roth ira conversions for both years. So, for the contribution for the 2019 year (which, again, I made in 2020), I started off by doing a contribution to my traditional roth ira account (step 1). However, I realized a couple days later (before I did the back door conversion) that my MAGI for 2019 was just under the limit (i.e., I could contribute directly to Roth), so I called Vanguard and had them recharacterize it as a Roth contribution instead, which they did. I knew though I would be over the MAGI limit for 2020 to contribute directly, so for the 2020 year, I did the back door conversion (contributed to the traditional ira and then converted it all to the roth ira).
Here are the forms I got from Vanguard:
– A 2019 Form 5498 that show a $6K contribution in Box 1; $0 in boxes 2-5; the “IRA” box checked for box 7; $0 in boxes 8-13a; and nothing in Box 13b, 13c, or Box 11.
– A 2020 Form 1099-R that has two rows:
— First Row: Box 1 : 6,000.20; Box 2a: $0; Box 2b: “Taxable amount not determined” in NOT checked, but “Total distribution” IS checked; Box 4: $0; Box 5: blank; Box 7: R; IRA/SEP/SIMPLE is checked; Box 11: blank; Box 14: $0; Boxes 15 and 16: blank
— Second Row: Box 1 : 6,000.05; Box 2a: $6000.05; Box 2b: “Taxable amount not determined” AND “Total distribution” ARE BOTH checked; Box 4: $0; Box 5: blank; Box 7: 02; IRA/SEP/SIMPLE is checked; Box 11: blank; Box 14: $0; Boxes 15 and 16: blank
Any help on how to do the 8606 form would be much appreciated. Do I need to amend my 2019 return as well?
Well, you don’t have to do a 2019 8606 because you didn’t make any non-deductible IRA contributions for 2019. You just did a 2019 direct Roth IRA contribution.
For 2020, you simply do the Backdoor Roth IRA in the usual way, no?
Your 2020 1099-R needs fixed. They need to reissue a new one with 2b checked or with 2a $0.
Your 5498 sounds wrong too honestly. Shouldn’t your $6K be in Box 10, not Box 1?
Thanks!
Re the 2020 1099-R, which row are you thinking needs fixed? The first row reflects the recharacterization of the IRA contribution (hence the R in box 7; it’s on a 2020 1099-R because the recharacterization of the contribution from traditional IRA to ROTH IRA was done in 2020 even though it was for 2019). It does have a $0 in Box 2a.
The second row on the 2020 1099-R reflects the typical back door roth conversion for 2020 and seems identical to the screen shot you have near the bottom of this page (https://www.whitecoatinvestor.com/fix-backdoor-roth-ira-screw-ups/); i.e., it has the 6K amount in 2a, but then 2b is checked.
I just called Vanguard re the 5498. For recharacterizations, I guess they issue two 5498s (based on some googling, this is common practice, not just Vanguard). The first for the initial (erroneous) contribution to the tIRA, and the second for the recharacterized (corrected) contribution to the rIRA. That second one just hasn’t been issued yet (it gets issued in May). Those are tied together by Row 1 in the 2020 1099-R showing the recharacterization of the initial contribution (with the code R).
I think you’re right about not needing to amend my 2019 taxes. Despite the somewhat messy (yet I think accurate) paper trail it creates with two 5498s tied together with a 1099-R line item, at the end of the day post-recharacterization, the 2019 contribution was to a roth IRA and thus does not need to be reported.
Oh, it has two rows? No wonder I got confused. I could have sworn I saw 2a had $0 in it at one point but when I looked back it didn’t. Interesting.
Thanks so much for your info!
I just realized I made a mistake and google search took me here!
Here is my story —
Both my husband and I have rollover IRA from previous 401k plan. I was reluctant to do backdoor IRA but I don’t know what got me this year. I found a step by step guideline and completed 2020 and 2021 backdoor just earlier this year. I was so stupid not to think rollover IRA is a traditional IRA…. anyway, I just found out my mistake this afternoon and I am hopeless now because I don’t have a job now so my rollover IRA has no place to move. Also, it seems like my husband’s current 401k plan doesn’t allow rollover IRA to move over either…. Can you please give me some directions? My husband’s rollover is $70K but mine is six figures….. I don’t know how we can deal with the possible tax implication. Can I reverse my backdoor IRA? Thanks for your advices in advance!
p.s – I have filed my 2020 tax.
No reason to be hopeless, you haven’t even screwed up….yet. You still have 9 months to figure out what to do with that IRA to avoid being pro-rated. And even if you get pro-rated, it isn’t the end of the world, it just costs you a few thousand in taxes now instead of later and some hassle.
First, double check with your husband’s 401k plan. That’s a really weird 401k that doesn’t allow IRA rollovers into the plan. Push on that a bit.
Second, reversing the IRA contributions isn’t a bad idea. That would certainly fix the issue. You have until the end of the year to do that. More info here:
https://finance.zacks.com/can-ira-contributions-reversed-same-year-2098.html
Probably have to file a 1040X for 2020 too. That’s not the end of the world though.
Hi Amy,
I’m in a similar situation. I’m super hopeless and stressed by my back door Roth conception in 2021. Also forgot my previous 401k had been converted into a traditional IRA.
Can you please let me know if you found a solution to your situation?
Thank you!
Same problem and possible options for you Henry.
Thank you so much for all of your work here and for these helpful posts. I have a question that I didn’t see answered in the comments or in the article so I was hoping that someone could help. In 2018, I over-invested in my Roth IRA because my salary changed putting me into the partial contribution position. I was able to recharacterize that money into a Traditional Roth before I submitted my taxes in 2019 but never did the backdoor conversion to move the money back to the Roth IRA. The amount I recharacterized from the Roth to Traditional IRA per form 5498 was $4,410.27. At present the account total is at $4,442.95. From reading this site and others, its seems that I will need to pay taxes (though in current year 2021) on the earnings above the original basis ($4,410.27) if I want to do the backdoor contribution for 2020 or 2021 if one is easier than the other. Is there someone that has been in a similar situation that could please confirm? Once I pay taxes, then I can move the money to the Roth, since it will all be post tax money, correct?
Your basis may actually be less than $4410.27. For example, if you put $5,500 in, and you should have only put in $4,000, and you recharacterize that contribution, it’s possible that $4,400 went from the Roth IRA to the traditional IRA due to gains. Your basis would only be $4,000, not $4,400.
You can still do a 2020 contribution and of course a 2021 contribution. I’d do those and then convert the entire thing and pay taxes on whatever the amount above the basis is. Hopefully your brokerage can tell you what the basis is. It shouldn’t be any more than $4,410, but could be a little less.
Hi! Thank you so much for what you do. Being an IMG resident, I had zero knowledge about finances, but learned so much in the last 2 years from your books, podcast, blog, twitter and Fb group.
I had a couple of mistakes on my 2020 backdoor Roth IRA and wanted to verify if I filled my 8606 correctly.
Contributed directly to Roth in Jan 2020 6000$ (3rd year IM resident) and invested in mutual funds (REITs and total international). In February/March I signed my contract, and with sign on bonus I was above the limit for Roth contribution.
The timing for all this was not a great one – market fluctuating a lot.
Called Vanguard and recharacterized from Roth to tIRA – at that time the amount was 4865$. Made a mistake here a left the money as they were – in mutual funds.
After a couple of days converted to Roth -> 5159$
Now my 8606 (partII) looks like this:
16 – 5159$
17 – 4865$
18 – 294$ – taxable amount.
Does this look correct, or am I missing something?
Thank you so much!
I don’t think you’ll have a taxable amount. Your contribution was $6000 (16). Your conversion was $5,159. (17) No tax due. In fact, you’ll be carrying a loss around on your 8606 for a while.
Thank you for your answer!
So the contribution amount does not have to match with the 1099-R number that I got for the recharacterization?
No. The contribution is what you originally contributed, not what was recharacterized. It’s as though you contributed it correctly initially.
Thank you! It makes sense now!
Step 5 should be Step 1. The pro rata rule and already having money in IRAs should be a major warning step.
I guess if people only want to read the first rule maybe.
Thanks for this information. I have a screw-up I need help with knowing how to fix.
My wife and I each had about 14,000 in our Traditional IRAs all post tax and asked our IRA provider in December 2019 to apply our $7,000 each contributions for 2019 to the Traditional IRAs and then convert them full balance to a Roth for each of us. Mine worked great and was done by 12/31/19. I did this again in 2020 for the 2020 contribution and all good.
But the provider screwed up on my wife’s as follows (even though they were started at exact same time).
1.) They put her 2019 contribution in her Traditional IRA on 1/2/20 and re-characterized it to a Roth … which we cannot do. We told them to fix it as we wanted to convert the whole account when we saw the error. In January 2020 they converted the rest of her account $14,000 to a Roth. But they apparently never fixed the re- characterization. We did not notice as the Roth (we thought was now fixed) had $21,000 in it as we expected.
In September 2020 she contributed $7,000 to Traditional for 2020 contribution and converted it to a Roth. All looked ok as Roth had $28,000 plus about $1100 earnings in it & we figured we would pay tax on the earnings converted.
Now doing our 2020 taxes and provider sent us two 1099Rs for my wife’s account. One showed a recharacterization Code R of $7026 and taxable amount determined as 0. Not good.
The other 1099R shows we converted $21,100 to a Roth. Normal distribution; taxable amount not determined.
I expected one 1099R for the full $28000+ amount as a Roth conversion as we told them to do repeatedly.
Now they are saying they cannot fix the recharacterization of the 2019 contribution from Jan 2020 because it’s past 2019 tax filing date. We are fighting with them to fix it but not optimistic and running out of time for May 17th filing.
Traditional IRAs were 0 at end of 2020 and we each only have one. 2019 contributions were recorded in 2019 taxes and 8606… planned to do the same for 2020.
Any idea how we fix this now and what it means tax-wise ?
We are over 60 and retired.
Thanks !
We also each have 401K/403b with taxable and non taxable basis in case that matters for what we should do.
Doesn’t matter.
I’m no accountant, but I’d start by making sure the forms they send you are correct. Then and only then, reporting them properly. Your 2020 8606 should include all contributions for 2020 and any conversions done in 2020.
Hi
First of all, thank you.
I should be able to figure this out with all that you’ve written, but…
I can’t contribute to a Roth because of the income limit, and so am in the process of opening a traditional IRA with a nondeductible contribution and then doing the backdoor Roth conversion as you have laid out into an existing Roth that I have.
The thing is, I just discovered that I have an outstanding IRA (a Rollover IRA) from a job 10+ years ago (multiple moves broke the paper trail and so I didn’t even know I had it sitting there). The balance is a tiny $3700 and I only have records going back to 2010, when the balance was $3570 (it’s been in cash it seems all this time).
My understanding is that if I go ahead and open the new IRA, contribute my $6000, and then backdoor it into my existing Roth, this outstanding Rollover IRA will find its way into the tax reporting. I’m not sure if this is a one time thing or if it’ll complicate my taxes every year.
What should I do to simplify things, particularly tax reporting? I’d ideally like to only have money in a Roth.
Thank you!
I’d just convert the $3700 to a Roth IRA and pay taxes on it this year.
I foolishly listened to a cfp without doing my own research first. I’ve read through this and I am still confused about whether I am f&$ked or not. Here’s the situation.
– old job rollover IRA sat in cash (🤷🏻♀️) at trowe for a while. Finally moved it to a fidelity rollover IRA where it was pegged to retirement target fund. Never contributed ANY after tax money. Total contributions over life of account prior to it becoming a ‘rollover’ approx 42k, current balance 52k.
-new cfp recommenced back door roth and I did this for 5k. At the time he thought my current 403b wouldn’t allow me to move my old rollover Ira in, and therefore I would be facing prorata next spring (but he didn’t tell me this!)
-now seems I CAN move the rollover Ira into my current 403b before December. I plan to do so. But my cfp is saying I should only move the pre-tax contribution 42k, and leave the growth (keeping in mind I haven’t contributed anything after tax to this rollover ever-the conversion was from a separate traditional Ira opened) in the rollover Ira ‘just in case’ for the irs.
-what would be the reason for this? Shouldn’t I roll it ALL into my 403b so next year I can potentially do a seamless backdoor roth? Will I actually ow e any taxes if all of the funds in the rollover were pre-tax/growth that was never removed? Even if I DO owe taxes, can’t I just estimate this, do the full rollover, and save that up for April?
The growth is pre-tax too. Move it all. And get a real advisor.
You know you can put $6K into an IRA right, not $5k?
No taxes should be due as I understand your situation.
Yes, I know I can do 6k. It was a chunk of money I had at the time. Then all this mess so I held off on the final 1k. Thanks for the response. That is also how I understood it…unfortunately this is my first year with a cfp and I went with a group that does yearly 🤔😒🙃 will not be staying after the year is up for sure!
Pretty tuff stuff and hard to keep up. So If I am reading this correct you move all the found IRA (that’s in Fidelity) over to the 403b (which is now in a tax deferred bucket) and you will only have to pay tax on the new $5000 that was put in to the Roth (tax free bucket). No way around that. New money for this year (2021) could be as much as $6000 (the $5,000 rollover money from above does not count toward this contribution).
3 suggestions: Check what target fund you are in, the further out the better the return ( less bonds). 2- Get a better CFP for sure, hard to believe none of these items were covered ahead of time but I totally believe it. 3-Keep asking questions and run all this by someone like a Fidelity CFP (should be free).
Lots of good info on the WCI website, good luck. 👍
You usually don’t pay tax on Backdoor Roth conversions because you didn’t get a deduction on the traditional IRA contribution.
Oh, Sorry. I miss read comment.