By Dr. James M. Dahle, WCI Founder
Reporting the Backdoor Roth IRA properly on Turbotax is unfortunately even more complicated than filling out Form 8606 by hand. The key to doing it right is to recognize that you report the conversion step in the Income section but your report the contribution step in the Deductions and Credits section. Since you generally do the income section first, you report the conversion before you report the contribution, even though you actually did the contribution before the conversion. At the end, you want to look at the Form(s) 8606 that Turbotax generates, just like you would check up on one filled out by an accountant.
Step 1: Reporting the IRA Conversion Step in Turbotax
Let's start at the very beginning and walk you through step by step. I'll be using Turbotax Home and Business 2019, but honestly, this hasn't changed in years and probably won't change for years. You will also probably want to use the download (desktop) version instead of the online version. If for no other reason, I find the “forms mode” to be super valuable. Also remember that this walkthrough assumes you did the Backdoor Roth IRA process “correctly” in the “normal” way, i.e., made a $6K contribution during the calendar year and did a $6K conversion immediately afterward. You'll need to make a few changes on your own if that isn't true. If you did not make your conversion correctly, you'll want to read through these posts:
How to Do a Backdoor Roth IRA Ultimate Guide
How to Fix Backdoor Roth IRA Screw-Ups
Now, let's dig in and get started.
First, you'll need to go to the personal section.
Then the income section.
In general, it's best to use Turbotax like a pro and move around it as you need to rather than going through all of their long lists of questions. If you get stuck, you can use the “guide me” option. But for now, check “I'll choose what I work on.”
Now you're on the Turbotax income menu. Scroll down to the Retirement Plans and Social Security section and click on the start button next to IRA, 401(k), Pension Plans (1099-R) line.
Vanguard sends us 1099s each year, so I'll check the box yes and hit continue.
The import feature from Turbotax is very nice, particularly for big long complicated lists of taxable account transactions. But a quick 1099 is no biggie. I can enter it faster manually than download it. I just pull out my 1099-R from Vanguard. . .
Yes, I know it's a 2020 1099. No big deal. The 2019 one looked exactly the same and so will the form for 2021. Note that there are a few cents reported in boxes 1 and 2. Feel free to round those to the nearest dollar on your taxes.
Now you just input that information into Turbotax. Click the first button on this page and hit continue.
Just transfer the information over. Box 2b deserves special attention. If Vanguard (or whoever) didn't check that box, then they had better have left box 2a blank or put a $0 in it. If not, have them correct the 1099. In general, you'll have a 2 in box 7 and the IRA box afterward should be checked too.
If you filled out the prior page right, this page should look about like this. Just hit continue.
It's not an inherited IRA, so you click the no box and continue on.
Since you didn't take the money out and buy a sailboat with it, click the first button. Since it was a Roth conversion, you click the second button in answer to the second question and hit continue.
If you are married, filing Married Filing Jointly, and your spouse is also doing a Backdoor Roth IRA, instead of hitting continue, hit “Add Another 1099-R” and go back through the previous questions to enter the information from your spouse's 1099-R.
You'll eventually come back to the same page. Now hit continue. Turbotax will ask you a few more questions.
Just hit “No, I didn't” and click continue.
Next, it asks about non-deductible contributions. Note that you'll see this question when you get to the contribution section too. Click yes and continue.
If you're doing your Backdoor Roth IRA “correctly” in the “normal” way, your basis at the end of the prior year should be $0. If yours isn't for some reason, put in your basis (i.e., non-deductible money put into the traditional IRA but not converted out of the IRA). Then hit continue.
This is an important box to get right, and it's important to make it zero too! This line goes directly to line 6 of Form 8606. If this number isn't $0, you're going to have your conversion pro-rated. Fill it in accurately, then hit continue.
Okay, you're now done with entering the conversion step into Turbotax. You're back on the Income Menu in Turbotax. If you scroll down to the Retirement Plan and Social Security section you'll see $6,000 ($12,000 if you did a Backdoor Roth IRA for your spouse too) next to the IRA, 401(k), Pension Plans (1099-R) line.
Step 2: Reporting the IRA Contribution Step in Turbotax
Now let's do the contribution step. First, let's go to the Deductions and Credits menu by clicking on Deductions and Credits at the top. Then click on “I'll choose what I want to work on.” You're now on the Deductions and Credits Menu.
Scroll down to the Retirement and Investments section and then click on the “Start” button next to the Traditional and Roth IRA Contributions Line.
It'll take you to this page.
If you're filing Single, it'll only give you one column of boxes, but if you're filing MFJ, there will be a column for you and your spouse. Click the traditional IRA boxes for each of you. Remember you're contributing to a traditional IRA, not a Roth IRA. Then hit continue.
Click no to go to the next page.
Presumably, you put in the maximum $6,000. If you're 50+, that could be $7,000 [in 2021]. Fill the box out accurately, then hit continue.
This question is asking about recharacterizations, discussed above. If you're doing your Backdoor Roth IRA correctly, you'll answer this one “no” to go to the next page.
This question is asked because Turbotax is trying to discover if your IRA contribution is deductible. There is an income limit on IRA contribution deductions if your income is above a certain amount. Just answer the question truthfully, yes or no to move on.
You'll get the same question for your spouse if any.
If you contributed too much to an IRA in the past, here's where you report that. Most will just click “no” here and move on.
Next, Turbotax will ask you the same three questions about basis and amount in the IRA at the end of the previous year that it asked at the end of the conversion section. Make sure you answer them the same way! Don't worry that they were asked twice. That's normal. Then, if married, Turbotax will take you back through all the same questions about your spouse from the “repayment of a retirement distribution” on down. Once you answer all of those, you end up here.
Two things I want you to notice on this page. First, you, as a high earner, get no IRA deduction despite contributing $6,000-$12,000 to IRAs for the year. So that is $0. Second, now that you've entered your conversion and contribution, the amount of tax due as calculated by Turbotax in the upper left (“Federal Refund $0”) hasn't changed. That shows you that you did the whole process correctly. There should be no additional tax due from contributing to an IRA indirectly via the Backdoor Roth IRA process. Hit continue and you'll go back to the Deductions and Credits menu.
Scroll down to the Retirement and Investments section and make sure that you have a $6,000 (or $12,000) on the Traditional and Roth IRA Contributions line.
If you're really neurotic, and you have the downloaded version of Turbotax, you can double-check you did it right by going to Forms Mode (button in the upper left of the screen). Once there, you can click on your Form(s) 8606 to make sure you did it right.
Now you can see Turbotax's version of Form 8606. It's okay that it looks slightly different from the official IRS form. The IRS doesn't care. Remember if you did a spousal Backdoor Roth IRA to check both 8606s. The most important lines to check are lines 15c and 18. If you did the Backdoor Roth IRA correctly, these should both be $0. If they're $1 or $5, that's okay. If it's $6,000, you entered it into Turbotax incorrectly and need to start over.
Note that Turbotax uses the “Taxable IRA Distribution Wkst (per IRS Pub. 590-B)” to fill out this form. This is a bit of a gray area as to whether to do that or to simply go down the 8606 form. If you go through the worksheet, there will be nothing on 8606 lines 6-12. Either way, no biggie, as long as lines 15c and 18 are correct. If you care, this is what that worksheet looks like:
Amazingly, it looks a whole lot like lines 5-12 of Form 8606! Turbotax also has a version of this you can look at in Forms Mode. Here's what it looks like for our example:
Incidentally, if you have screwed this up and you're not getting what you want and you just want to start over, all you need to do is delete all the applicable forms in Forms mode. The most important ones to delete are the “IRA Contrib Wks” and the “IRA Info Wks.” Just click on the form and you'll find there's a delete button at the bottom on a PC but you need to go under the Forms menu on a Mac and select “Remove [name of form].” Then you can go back to the top and follow my instructions.
Hope this was helpful.
If you have a question about the Backdoor Roth IRA and not Turbotax specifically, you should FIRST read this very in-depth Backdoor Roth IRA Tutorial before asking your question in the comments below. I promise you there is a 99% chance your question is answered there.
Any questions? Is this the process you follow on Turbotax? Why or why not? Comment below!
Thank you so much for posting this! I could not figure it out until seeing this and it really helped me out. Thank you!!!
Our pleasure
Im a bit confused. In order to do a backdoor Roth, you cannot have any money in a traditional IRA, SEP-IRA or SIMPLE IRA, on December 31st of the year you do the conversion step.
I have money in IRAs. Specifically, several rollover IRAs. When I am doing my taxes, it looks like I am getting penalized/taxed for this because it’s asking me the value of my total traditional IRAs on 12/31/22, which is significant.
It’s looking for the answer of “0” value for my total traditional IRAs, assuming I did the conversion correctly, which I did. However, am I getting taxed for having other IRAs?
A backdoor Roth IRA is a two step process outlined here:
https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/
where step 1 is a contribution to a traditional IRA and step 2 is a conversion of that traditional IRA to a Roth IRA, which is usually tax-free because the contribution was done with after-tax money.
However, the way Roth conversions are taxed is pro-rata. So if you have $95K of pre-tax money in a traditional IRA and $5K of after-tax money, if you do a $5K conversion, 95% ($4,750) of that conversion will be pre-tax money and $250 of that conversion will be after-tax money. This is why you have to do something with your traditional, SEP, and SIMPLE IRA before 12/31 of the year you do a Roth conversion. If you don’t, that conversion will be pro-rated. It’s not illegal to be pro-rated. It’s not even all bad. But it usually doesn’t accomplish what you were hoping to accomplish (put $6500 of after-tax money into a Roth IRA indirecty.)
Hope that helps explain why you’re getting taxed. The good news is the money you paid taxes on this year will never be taxed again.
Issue with my 8606 Worksheet:
I followed these steps using the download/desktop turbotax 2022 version.
I am unable to submit the tax return, as I am met with this error message:
“Check This Entry … IRA Contributions Worksheet: Line 15 – Amount of taxpayer’s IRA contribution elected to make nondeductible should not be more than zero”
When reviewing the forms, 8606-S and 8606-T look identical to your example above. However, my “IRS Contribution Worksheet” line 14 is highlighted red, with 6000 on that line for both taxpayer and spouse, and the same error message is pasted at the bottom of the window.
Anyone know how to fix this?
This just seems like the error message is wrong – my nondeductible IRA contribution is 6000; this will not let me include a number greater than zero, apparently!?
The nice thing about the desktop version is you can do an override when you go into forms mode. If you’re sure you’re right, then you can put whatever you want on the forms. I’ve had to do that with a separate issue. But problem shooting Turbotax software is hard for me to do.
You’re sure it wasn’t a partially or fully deductible IRA contribution right?
Thanks!
As I understand, my IRA contributions were not at all deductible.
For both my spouse and me, we did the regular backdoor Roth IRA process, as you have so frequently described. $6000 one time contribution to a traditional ira (for both of us), and converted to Roth a few days later.
Will try to erase the worksheet soon. And hopefully it won’t adjust the forms.
Especially painful TurboTax setting, as I’ve had taxes done for weeks and done all the “final checks”, and finally now go to submit and then this other warning message finally comes up! Last minute 🤦♂️
Sometimes deleting a form and starting over does fix Turbotax issues.
This article is worth its weight in gold. I come back every year and follow this guide haha. Just did today as well.
How can I report $10000 (Roth conversion for pretax) and Backdoor Roth ($6500 -aftertax) on Turbotax? Thanks
Just follow the instructions in this post and when it asks for how much you converted, put in $16,500.
Thank you so much for these detailed instructions and screenshots. I’m amending my tax return from last year because TurboTax messed up my form 8606 and I was about to give up until I stumbled upon this. Amazing, thanks so much.
Hello!
Thank you for this step by step instructions. This is very helpful!
This is my first time doing backdoor IRA and contributing to any IRAs. On the question that asks “Any Nondeductible Contributions to Your IRA?” do I choose “No, I did not make and track nondeductible contributions to my IRA.”? Appreciate the help
Did you make a non deductible contribution to your IRA? If you’re doing hte Backdoor Roth IRA like most of us, you did. So you answer yes. That’s the first step of a Backdoor Roth IRA.
I made a $7,500 after tax contribution to a traditional IRA. The next week when I moved the $7,500 to the Roth, the money had grown to $7,501.90 from interest gained in the account. I moved all of the money. Now, I am lost about how to report this money following the steps above. When I called Vanguard to request the $1.90 be returned to me because it was an excess contribution, the representative said, “It was not an excess contribution. I correctly contributed $7,500. The excess $1.90 should be left in my Roth account and reported in my income section.” Is this correct? I do not want to pay any penalties in the future for making a mistake now.
https://www.whitecoatinvestor.com/pennies-and-the-backdoor-roth-ira/
The representative is right.There’s no penalty, but you’ll owe tax on $2.
Hi there, finishing up my taxes with TurboTax Online and have hit a block. In their explanation of the backdoor Roth, they note: “You’ll receive a Form 1099-R with code 2 in box 7 (or code 7 if your age is over 59 ½) in the year you make your Roth conversion. You should report your conversion for the year you receive this 1099-R:
If you received this form in 2023, complete both steps below to report it on your 2023 taxes.
If you’ll receive this form in 2024, wait to report it on your 2024 taxes. In this case, only complete Step 1 below for your 2023 taxes”
2023 was my first year doing the backdoor.. I received the 1099-R on 1/4/2024. So do I not enter the 1099-R til I file 2024 taxes? I may have missed this, but I did not see this step elsewhere on the guide so want to make sure I am reporting correctly.
Also, in form 8606 line 8, 16, and 17 are all missing my 6500 contribution, seemingly not reflecting the conversion.. turbotax asking if I switched or recharacterized to a Roth, but that does not include conversions. I am entering my total basis as 0.. apologies if this was covered already and I missed it.. want to make sure we report correctly, what am I doing wrong?
Conversions done in 2023 are reported on your 2023 taxes, which are completed in 2024. Your receive a 2023 1099-R during calendar year 2024.
Gotcha, so you are saying only report the conversion and wait to enter the 2023 1099-R when I file my taxes next year? Any idea about the strangeness of the 8606 form?
What do you mean “wait to enter” it. If it’s for the 2023 tax year, enter it when you file your 2023 taxes.
I am sorry to ask, but I am struggling to complete my 8606 for the year 2023.
This is the scenario:
2022 – opened a Traditional IRA and contributed the limit of $6,000. I rolled over the total amount to a Roth IRA within the same year. I completed an 8606 form for that year with no issues since it was my first time doing it and your tutorial helped tremendously (thank you).
Unfortunately, while waiting for that money to become effective in my Traditional IRA after transferring from my bank account, it gained some interest even though it was held on Money Market value. It gained exactly $2.43. I received those funds AFTER I rolled over my original contribution, so I opted to leave that money there for the rest of the year.
2023 – contributed the limit of $6,500 to my Traditional IRA. I rolled over $6,502 to my Roth IRA (my 2023 contribution + the additional $2.43 left from 2022).
Now I am not sure how to complete my form 8606. This is what I got thus far:
Line 1. $6,500
Line 2. $0
Line 3. $6,500
Line 4. $0
Line 5. $6,500
Line 6. $0
Line 7. $0
Line 8. $6,502
Line 9. $6,502
Line 10. 0.999
Line 11. $6,495.49
Line 12. 0
Line 13. $6,495.49
Line 14. $4.51
Line 15a. 0
Line 15b. 0
Line 15c. 0
Line 16. $6,502
Line 17. $6,495.49
Line 18. $4.51
Best,
Francisco
You didn’t give me all the answers to the questions the 8606 asks so it’s hard for me to fill it out for you. Here’s my best guess.
1. 6500
2. 2
3. 6502
4. 0
5. 6502
6. 0 (right?)
7. 0
8. 6502
9. 6502
10. 1 (0.9996 rounds to 1.000)
11. 6502
12 0
13 6502
14 0 (right?)
15c 0
16 6502
17 6502
18 0
I think you got $2 of tax free income due to rounding.
Thank you very much.
If I understand correctly Line 6. is $0 since I do not have any other traditional, SEP, or SIMPLE IRAs.
That said, this year the same thing happened again – after I contributed $6,500 to my traditional IRA. While waiting for that money to become effective after transferring from my bank account, it gained some interest even though it was held on Money Market value. It gained exactly $8.93 this time. I received those funds AFTER I rolled over my original contribution, so I left that money there for the rest of the year (again).
I understand that those $2 of interests constitute a “basis” for the year 2023, so they should go in Line 3.
I was not aware I was allowed to round up in Line 10, this makes things easier for calculations, and will also make Line 14. $0 as you pointed out.
I tried to avoid this like the plague but it was impossible, even calling beforehand my back and Fidelity….
Thank you again doctor,
Francisco
I think it’s easier to just do a second conversion of the $2-8 in interest each year, thus avoiding any pro-ration.
To complete my first ever backdoor Roth process, I had to convert my $4,134 Rollover IRA to my Roth IRA.
($4,134 = my residency retirement account I had moved to Vanguard after graduation).
Where and how does this conversion fit into the TurboTax Backdoor Roth IRA reporting process? I did receive a 1099-R from Vanguard.
I did *not have a 401k in 2023, but accidentally completed the backdoor Roth IRA process (instead of taking the deduction in a Traditional IRA), will I run into any issues? Ie., will Turbotax think that I have deducted the $6,500 and try to tax me on it (again)? (The money I contributed was post-tax money).
Line 8. Add it to the $6,500 or $7,000 or whatever you converted as part of the BDRIRA process.
If you got the deduction, then you’ll need to pay taxes on the conversion, but it’s all the same in the end. Turbotax is telling you that the money you contributed was not post tax money. It was pre-tax money. That’s okay. No big deal. It’s all the same whether you pay taxes when you make it or you pay taxes when you convert it. Same tax bill.
I did not get/take the deduction (traditional Ira) route; I instead completed the backdoor roth conversion. The contribution for backdoor roth conversion was post-tax money. I was just clarifying if turbo-tax would *think I had taken the deduction since I was/am eligible given I had no 401k….and thus risk getting *double taxed*?
I was just curious if you’d think I’d run into an issue…I haven’t yet started the filing process but wanted to be prepared.
You seem confused on this point. I don’t think you get a choice about the deduction. If you are eligible for a deduction for an IRA contribution, you have to take it. The way you avoid double taxation is by taking the deduction and then paying tax on the conversion.
Thank you for explaining that.
“Line 8. Add it to the $6,500 or $7,000 or whatever you converted as part of the BDRIRA process.”
^Does this mean I fill out “Line 8”: $4134 on the SAME 1099-R form as the form for the $6500?. ie., Am I only filling out one 1099-R form, even though I received two separate ones from vanguard (one for the rollover and one for the traditional IRA)?
Example: Line 1: $6501, Line 8: $4134? On the Vanguard 1099-R for the $6501 contribution, Line 8 is blank.
OR, should I “add another 1099-R” for the rollover conversion and fill it out exactly as it shows on the Vanguard 1099-R which would mean Line 1: $4134…Line 8: blank?
I am now on the “Your 1099-R Entries” Page (after putting Line 1: $6501, Line 8: $4314). Total Withdrawals show: $6501.
So far Turbotax informed me that “Good News you don’t owe any extra tax on this money” with the one 1099-R added for the Gross distribution of $6501/Line8: $4314…
However, I *think I DO owe tax on the $4,134…since this was a 2022 rollover from my 457 residency retirement account. Wouldn’t I need to pay taxes on this since I completed a conversion to Roth IRA?
Lastly, I haven’t yet been prompted to take the deduction on the $6501 (even though I qualify to), then owe taxes on the conversion as expected. Like I said, the contribution of $6500 was post-tax money…just checking, so far so good?
On the TurboTax, it states:
https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/enter-backdoor-roth-ira-conversion/L7gGPjKVY_US_en_US?uid=lt3l3kxn
“You should report your conversion for the year you receive this 1099-R:
If you received this form in 2023, complete both steps below to report it on your 2023 taxes.
If you’ll receive this form in 2024, wait to report it on your 2024 taxes. In this case, only complete Step 1 below for your 2023 taxes. You’ll complete both steps next year when filing your taxes for 2024.”
On my Transaction History it states I completed my contribution/conversion on 12/26/23…however my 1099-R was generated 1/6/204.
Should I continue to follow your steps to completion, or stop at “Step 1” like Turbotax is recommending? Again, I completed all Backdoor Roth contribution/conversion steps in 2023. It seems strange that TurboTax would recommend something based on the year the 1099-R is received, rather than when the conversion was completed?
You should report the conversion on your 2023 taxes. The date of generation of the 1099-R is irrelevant. If the 1099-R is not correctly reporting what actually happened, have them issue you a correct 1099-R.
Per your instructions: “Next, it asks about non-deductible contributions. Note that you’ll see this question when you get to the contribution section too. Click yes and continue.”
On TurboTax : “Let us know if you made and kept track of any nondeductible contributions to your traditional IRA from 2022 or prior years”
Could you clarify what this means?
2023 was my first time contributing to a traditional IRA in order to complete the Backdoor Roth process.
2022 I contributed directly to the Roth IRA during residency.
Do I still select “yes”? Or…would “no” be the accurate answer for me/a first timer.
Thanks in advance for all the above!
Was your traditional IRA deductible? For most of us, it is not so we go down that path.
It asks for 2022…I contributed to a traditional IRA in 2023 for the first time.
Pertaining to my *2023 contribution to traditional IRA, it was technically deductable as I did not have a 401k through my employer…
Would my answer be “Yes” still?
I’m not a Turbotax customer service/software guru and haven’t used it myself in several years and don’t actually have a current copy of it. But I’ll try to help.
I agree that you need to pay tax on the $4,134 of pre-tax money that you’re converting. The trick is getting Turbotax to actually have you do that. You’re not required to answer the questions Turbotax asks. You’re required to have your tax forms correct that Turbotax generates. So if in order to have your tax forms be right you have to change something (like line 2) on the 1099 you’re putting in, I’d do that.
Thank you!
Could you clarify about how I would change Line 2?
This is how it looks on each of my 1099-Rs:
Line 2a Taxable Amount: $6500.94
Line 2b Taxable Amount not determined: checked
Line 2a Taxable Amount: $4,134.36
Line 2b Taxable Amount not determined: checked
What’s interesting is both my Vanguard 1099-R’s show Line 7 as: “2”. Maybe this selection is making both not be taxed?
Do you have any idea if instead of “2” I should be choosing another option?
Maybe this would be the correct option?” G-Direct Rollover and Rollover Contribution”
We have some tax folks we can recommend you to, but I don’t think any of them offer the service you’re looking for (i.e. helping someone use Turbotax):
https://www.whitecoatinvestor.com/tax-strategists/
I think I’d have to get on the phone with you to help you walk through this and that’s just not something I have the bandwidth to do. I wish I had the bandwidth to help every WCI DIY tax preparer walk through Turbotax but I don’t even prepare my own taxes any more so I don’t even have a current copy of Turbotax. If you can’t work through your necessary tax forms using Turbotax nor by hand, it might be time to hire some help.
Should I be adding two separate 1099-R’s: one for the $6,501 Backdoor Roth Conversion, and another for the $4, 134 Rollover Conversion?
If I do add both individually, the total gross distribution shows the actual total conversion for 2023 which is $6501 + $4314 = $10, 635.
You had mentioned I should be putting the rollover conversion $4,134 on “Line 8”, on which 1099-R would I add this on? And does this mean I would only be adding in ONE 1099-R for both conversions? Even though I received two separate 1099-Rs?
Hey,
Thanks for this. Working on my son’s taxes and was having a hard time understanding the wording in Turbotax that lead me to believe the cost basis for past non-dedcutable IRA’s was cumulative. This is the most thorough explanation on working through this with Turbo-tax that I have found. In our case I stumbled over some of the wording in Turbo tax as we had over contributed to his Roth in 2021 and had to re characterize a portion of his initial contribution and then get it to his Roth via a back door conversion from an IRA. Line 14 on the 8606 has in bolded letters “This is your total basis in traditional IRA’s for 2023 and earlier years”. This lead me to think I needed to add the amounts from 2021 and 2022 which TurboTax was not doing. Took me a bit to get my head around the basis going to zero each year after the conversion. Thanks again!
My pleasure. You now understand how it works.
Quick question about how to deal with an IRA match. Robinhood Gold offers a 3% match for IRA contributions. I contributed $6,500 in 2023 and then converted it to Roth. Do you know the tax implications of converting this extra money from the match into the Roth? Am I better off not having the match because it’s going to cause me a tax bill when I eventually pull money out in retirement? I’m having a hard time wrapping my head around all of it. Thanks.
I believe it’s considered pre-tax money like any other earnings in the account and you’ll pay taxes on it when you convert. No, you’re better off getting the match as the tax rate on it won’t be 100%.
Hello,
I recently got married last year, and since we will be filing separately, realized we both won’t be able to contribute to a Roth IRA. However, we both already put in the full amount ($6500 each). We ended up recharacterizing to a traditional IRA and converting back to a Roth IRA. It re-characterized $69xx for both of us. I followed the turbo tax guide, however, it is flagging me that I made a too much of a contribution and it will tax me on the excess 6% if I don’t take it out of my account?
Do you know if there is a workaround to this? Thank you so much!
You must not be entering it in properly. When it’s asking how much you put in a traditional IRA, the answer is $6500, not $69xx.
Hello Dr. Dahle,
Thank you for your wonderful website. I need your advice. My daughter and SIL are filing MFS. This is their first year doing backdoor Roth IRA. I am preparing 2023 tax return for them using Tax Slayer software and wondering if I have made mistakes entering information in 8606 and 1040. Below is the information for my daughter (have yet done for SIL). She originally contributed to Roth IRA early 2023 but realized she is no longer eligible for direct Roth IRA (MFS) and recharacterized the amount + gains to traditional IRA in December 2023.
1099-R Box 1 & 2a 7,587; Box 2b checked for both; Box 7 – code 2 and IRA/SEP/SIMPLE checked
1099-R Box 1 7,567; Box 2 – 0; Box 2b unchecked for both; Box 7 – code N
Form 5498 IRA Contribution: Recharacterized contributions $7,567; FMV – 0
Form 5498 Roth IRA: Roth IRA conversion $7,587; FMV $19,802; Roth IRA Contribution $6,500
Here is how it shows on 8606:
Part I
Line 1 – 7567
Line 3 – 7567
Line 5 – 7567
Line 8 – 7587
Line 9 – 7587
Line 10 – 0.997
Line 11 – 7564
Line 13 – 7564
Line 14 – 3
Part II
Line 16 – 7587
Line 17 – 7564
Line 18 – 23
Form 1040
Line 4a – 0; 4b – 7587
Line 5a – 7567; 5b – 0
My questions are:
1) Should the amount enter in part I of form 8606 be 6500 instead and report the gains as excess on form 5329? Or keep the amounts as reported on 1099-R and report the gains as excess on form 5329? Do the gains only enter in part III of form 5329 for traditional IRA or enter for both part III IRA and part IV Roth IRA?
2) If the amounts enter in part I of form 8606 are what being reported on 1099-R, did I enter correctly or back work (7587 on line 1, 3, 5 and 7567 on line 8, 9)?
3) Because of MFS and her MAGI is greater than $10000, she has taxable amount for IRA contribution, correct?
Thank you in advance.
Di
I don’t have access to Tax Slayer software and I’m definitely not the Tax Slayer technical help line, but I’ll try to help.
1) The contribution amount is $6500. After a recharacterization, it is as though you contributed to the traditional IRA originally as far as the IRS is concerned. The gains are of course included in the conversion amount on line 8.
2) No. Your 8606 and 1040 have all kinds of errors. Maybe the 1099-R does too, dunno.
3) Not sure what you’re asking. Because of MFS and MAGI greater than $10,000, the IRA contribution is not deductible and one cannot make a direct Roth IRA contribution and thus must go through the Backdoor Roth IRA process.
I”ll try to help with the 8606. I’m assuming a conversion was done during calendar year 2023 but you don’t actually say that.
8606
1 6500
2 0
3 6500
4 0
5 6500
6 0
7 0
8 7567
9 7567
10 0.859
11 6500
12 0
13 6500
14 0
15a, b, c 0
16 7567
17 6500
18 1067
1040
4a 7567 (not sure you have to fill this line out, it doesn’t matter though)
4b 1067
5a 0
5b 0
Hope that helps.
Hello,
Thank you so much for the quick response.
1) Regarding form 1040, I still do not get to your figures. I do need to enter both 1099-R forms, don’t I?
– If I enter the first 1099-R Box 1 & 2a 7,587; Box 2b checked for both Taxable amount not determined Total distribution; Box 7 – code 2 and IRA/SEP/SIMPLE checked, I have to check box Rollover, enter rollover amount $6500, and change the figure on box 2a to $1087 (7587 – 6500). The amount $1087 will bring over to form 1040 line 4a 7587 and line 4b 1087. It is not 1067 as you said for line 4b. The contribution amount 6500 will automatically bring over form 8606 line 1.
– For the second 1099-R Box 1 7,567; Box 2 – 0; Box 2b unchecked for both; Box 7 – code N, the information will show on form 1040 line 5a 7567 and line 5b 0. The only way to have both lines 5a and 5b of form 1040 $0 is not to report it. Will it be ok?
2) Form 8606: I have the same information as you, but see that the amount on line 18 1067 does not match the amount 1087 on line 4b of form 1040. Should amount on line 8 be 7587 because the statement said “Enter the net amount you converted from traditional, traditional SEP, and traditional SIMPLE IRAs to
Roth, Roth SEP, or Roth SIMPLE IRAs in 2023.” instead? This is the amount showed on form 5498 Roth IRA “3.Roth IRA conversion amount………………………………………………$7,587.”
Thanks
You need to properly prepare your tax returns. Whether that means “entering in both 1099-Rs” I have no idea. I’m not the Turbotax help line. This post is 3 years old and was written before that, probably the last time I logged into Turbotax. So I can tell you how to fill out a Backdoor Roth IRA, but I’m not nearly as good at telling you how to make Turbotax do it.
There are innumerable ways to screw up a Backdoor Roth IRA it turns out and this post was only written to show how to enter it into Turbotax when you do the Backdoor Roth IRA the easy way. I’d need 30 more posts to show how to deal with all of the ways to screw up the Backdoor Roth IRA.
If nothing else, you can get the downloadable version and do overrides to fill the form out right. Also keep in mind Turbotax and some other software companies fill the form out using an alternate method that uses an obscure spreadsheet in an IRS instruction. The important lines remain the same, but some of the other ones can look different.
As far as 1087 and 1067, my vision isn’t so hot these days. But maybe there’s something else on your return feeding into 4b?
At any rate, I wouldn’t worry about exactly how the form looks as long as you’re paying taxes on about $1087 of income from your Backdoor Roth IRA. If it’s trying to make you pay taxes on $8000, you know you did it wrong.
Quick question about cost basis:
For 2022, I contributed $6000 directly in my Roth IRA but then later re-characterized when I realized I did not meet the income requirement. During this period, I had lost $390 to the market, thus my 8606 line 14 indicated my total basis in traditional IRAs for 2022 and earlier years was $390 on my 2022 tax return.
For 2023, Turbotax asks me what’s my total basis as of Dec 31, 2022 based on form 8606, I entered $390 but I get a message saying “The IRA basis we transferred from 2022 is different from the basis entered. Include a brief explanation of why xx’s IRA basis changed with your return.” :confused
Am I supposed to entered $0? Or just need to include explanation that $390 was lost in market prior to re-characterization? Shouldn’t this value be auto-transfer when I uploaded my 2022 tax return?
I’m not the Turbotax help line, but that basis should carry forward each year until/if it gets used. Sounds like a Turbotax error. I’d just use the “override” feature.
Thank you, Dr!
Have you heard of any 1099Rs with an amount in Box 16 (state distribution)? I have the same amount in this box as I do in Boxes 1 and 2a. I wonder if it’s specific to my state (NC).
Due to this, I have an extra question in TT 2023:
1) Where is this distribution from?
Select the source of this distribution and enter any other North Carolina information:
– USAF retirement benefits
– Bailey settlement retirement benefits
– Railroad retirement or social security benefits
– None of the above
TT automatically selected the “None of the above” radio button. It also had a few text boxes:
– North Carolina Distribution Amount (populated with the amount in Box 16)
– North Carolina Withholding (blank)
– Payer’s NC state ID No. (blank)
Did Vanguard generate the 1099R correctly wrt to the state distribution amount?
I’m not sure, but you shouldn’t have to pay state taxes on a Backdoor Roth so I’d be doublechecking to make sure I’m not.
I had a traditional IRA funded with deductible contributions. In 2024 I rolled this into my employer’s 401(k) plan. In his retirement planning course. Stewart Welch has a section about the 3-step strategy that involves the above as the 1st step. He says “Your first step is to roll 100% of your IRA account up into your company 401(k) account and then begin the Two-Step Strategy beginning the following tax year.” I wonder why I would need to wait until the following tax year ?
No reason. You can certainly do a 2024 Backdoor Roth IRA right now. A little late for a 2023 one though.
Wow, your article helped me immensely to do these taxes correctly, all along I was not sure why I was paying taxes for my backdoor Roth IRA lots of $$$
Our pleasure.
In Jan of 2024, I began my first use of the backdoor Roth strategy. At that time I contributed $6,500 as a late contribution for 2023, as well as the $7,000 max for the year 2024. As these contributions were made after forms for 2023 were released, I did not have any tax filings regarding this on my 2023 return. This year, I am working through filing these contributions and conversions using TurboTax. I used this post as a guide, which I found very helpful. I was able to switch to the “Forms” mode, and confirm that my Form 8606 for 2024 looks as expected.
My question is, since I did not file an 8606 for 2023 last year, do I need to do that somehow this year? And if so, is there a way to do that through TurboTax, or must it be done separately? Or alternatively, does logging my total basis on my 2024 Form 8606 cover me on this?
I was also reading some comments regarding a Form 1040-X, would this be applicable to my situation, and if so how would be best to go about that?
Thanks in advance!!
Go back and file a 2023 8606 showing your 2023 IRA contribution.
Just do it by hand. It’s SUPER DUPER EASY when all you’re doing is filling out 3 or 4 lines. But there’s probably a way to go back to your 2023 version of Turbotax and make it do it if you really want.
Whether you have to include a 1040X or not is debateable. It’s not going to have much on it either though since your tax bill won’t change.
Thanks for the helpful guide!
One question– I am filling out my 2024 tax return online, and I’m confused about the portion where you report Nondeductible Contributions. Turbotax wants me to enter “nondeductible contributions to traditional IRA from 2023 or prior years”. However, I did not make contributions until summer of 2024– though I did put in $7000 of post-tax dollars and then converted the full amount into the Roth IRA.
There doesn’t seem to be any other place where I can report that this contribution is non-taxable (since it was already taxed). Should I still click “yes” and report the $7000 regardless? The wording is confusing, and I don’t want to get audited for tax fraud.
Turbotax is talking about tax year 2023, not calendar year 2023 when it’s talking about contributions. When asking about “former years” it does sound like they’re asking for your basis. So that could be the total of contributions in 2019, 2021, 2022 etc. that have never been converted.
But the software changes a little every year and I don’t use it anymore so I can’t really function as their help desk. I guess you’ll have to call them and figure out how they want you to do that. One option might be to use “forms mode” and overrides on Form 8606.
you are a life saver! thanks a million!
I was finally able to perform backdoor Roths for my wife and I this year. To do this, I had to move money in a SEP-IRA (from my first job about 10 years ago) to my Schwab traditional IRA and then do a rollover conversion to my 401K. I performed a Roth conversion of my wife’s old teacher retirement money that we previously rolled into a rollover traditional IR (greater than 10 years ago) into her Roth IRA account. I am using Turbotax online and am having difficulty making sure I enter this correctly. Mainly it keeps saying I contributed too much money to the traditional IRA and am subject to a fee and/or 6% tax on the overage until I reconcile the overage. I think my problem is that I am putting $0 for my IRA basis instead of the amount of money I had in those accounts as of 12/31/2023. Thoughts?
Hi! I know I am replying late to this message board but I think I messed up my Roth Conversion. I added $6500 but only converted $5998 in 2023 due to a loss in investments before transferring (I know, I made a mistake). I completed my 8606 form as though I converted the total $6500.
I did not realize that there was a loss until doing my taxes for the 2024 year while doing a split-year backdoor Roth. My 1099-R statement has a total of $12998. How do I amend my 2023 taxes ? Also, how do I complete my 2024 split-year Roth to reflect the loss?
I currently have as below:
1) $7000, 2) 5998, 3) 12998, 5) 12998, 10)x, 13) 12998, 14) 0, 15a) 0, 15c) 0
Does this seem correct to you?
Do a 1040X with a new 8606.
Might be best to leave the IRA contribution in the IRA until it grows back to basis, but you can carry the loss forward on 8606 indefinitely.
Hard to fill out your 8606 for you without knowing exactly what you did and when.
Thank you so much! This is very helpful.
Yeah, I see $502 on line 14 of form 8606 that will carry over, but I am not sure how to fill it out next year or how it’ll affect my contributions.
I guess it is a lesson learned on transferring while invested and not cash.
Line 14 goes to line 2 next year. It won’t affect next year’s contribution.
As a general rule best to not invest the money until it gets to the Roth IRA.
Thank you so much for all of your help! I really appreciate it. And yes, noted.
So, I contributed last year (2024) to a backdoor Roth for both 2023 and 2024. I also did the conversion last year. It is $13,500 total. I am trying to report this on Turbotax for this year.
After I enter everything in the Income and deductions sections, like it says so in this guide, I come to the Retirement Income Results page, where it says that my total (Traditional and Roth IRA distributions) are $13,500. And my taxable (Traditional and Roth IRA distributions) is $6,500.
Is this how it’s supposed to be? I thought nothing is taxable? Or am I misunderstanding this part of Turbotax?
never mind, i think i figured it out.
since I contributed last year (2024) for both 2023 and 2024, then my basis as of Dec. 1 2023, was actually $6500, and not $0 as i originally entered. it says to look at my most recent Form 8606 and line 6 (i think) and to enter that amount it, which I did and it solved that problem of making that contribution taxable
Well done. Line 2 messes more people up than any other in my experience.