[Editor's Note: Many high-income professional investors first learned about the Backdoor Roth IRA on this site. One of my most popular posts is the tutorial on the process. In the lengthy comments section of that post, many people asked how to handle a Backdoor Roth IRA (especially form 8606) if you contributed in the next calendar year. While it is “cleaner” to make your contribution and your conversion all in the same calendar tax year, you can make your contribution up until your tax filing date of the next year. I was going to write a post on the subject and then, lo and behold, a guest post on the subject showed up in my email box. The writer wanted to stay anonymous and we have no financial relationship.]
Maybe you are a new reader and just saw the light this January. Maybe you were reading up on the Backdoor Roth and December 31 flew by you. Maybe you are new to financial planning and weren’t sure if you’d have enough money to make the $6k contribution this year (Not very WCI of you! See, that’s where the planning portion kicks in). Or maybe you were waiting to see if you could afford your new boat and still have enough left over from your bonus to make the Backdoor Roth happen (please, please don’t let this be the reason — and if it is, for Pete’s sake, don’t admit it here!).
Whatever the reason, you have found yourself ready to do a Backdoor Roth for the previous year. You’re wondering if you can make a non-deductible contribution in 2015 to your 2014 traditional IRA and still get in the back door. If so, how do you do this?
How to Fill Out Form 8606 for Backdoor Roth Late Contributions
Great question. If you’re like me, you re-read the posts on Backdoor Roths here a million times trying to find the answer. You scour other websites but find yourself back here. You locate WCI’s generous image postings of how to fill out Form 8606 but can’t find an example of a procrastinator such as yourself who is contributing late. So instead, you head over to the IRS website, pull down the Form 8606 yourself, and try to make heads or tails of what seems like a foreign language, realizing of course that you are not a CPA but just a DIYer (that is my caveat emptor, by the way).
Below, you will see a Form 8606 filled out with 2014 values in the appropriate boxes, and the numbers for your 2015 Form 8606 in the margin on the right. Don’t worry, I’ll step you through it. Please note that this setup shows a conversion when there have been no gains in the prior year contributions so that there are no taxes due on gains.
Line 3 is your total tIRA contributions, including previous and current year. For 2014, that would be only the $5500. For 2015, that would be the $5500 for last year and the $5500 for this year. For the 2014 year, the answer to the Question in Line 3 is NO, so you enter the amount from Line 3 into Line 14 and skip the rest of Part 1. For your 2015 taxes, Line 4 represents the late contributions you made in 2016 to your 2015 tIRA ($0 since you were diligent this year) and Line 5 represents the late contributions you made in 2014.
Line 6 is the total value of your tIRA on December 31st, this is the information that will affect the pro rata rules. Since you have no previous non-deductible contributions because you have been a good little WCI minion and cleared out previous IRA accounts, this will be $0 as well.
Line 8 you skipped for 2014 because you answered NO to Line 3. In 2015, you will be converting the full amount in your tIRA to a Roth.
Line 11 is the non-taxable portion of your conversion — which, if you’ve done things right, should be the full amount you are converting — $11,000.
Line 14 is the basis in your tIRA for the current year and prior — which should now be $0 in 2015 because you just converted all of it to a Roth (remember, previously it was $5500 for the contribution year 2014 before you converted.)
Line 16 is the amount you converted to Roth. For 2014, that is $0, for 2015 that should be the full $11,000. Line 17 is the non-taxable portion that you converted. This should be $0 for 2014 and $11,000 for 2015. Line 18 is the taxable portion of your conversion. This should be $0 for both years since you did not do any conversion for 2014 and you converted only non-taxable (i.e. already taxed) portions of the tIRA for 2015. [Editor's Note: Whether you're doing your own taxes or paying someone else to prepare them, be extra sure to check that line and make sure it is zero. Many doctors have accidentally paid taxes twice on their Backdoor Roth IRA money.]
Looking Ahead
That should be it, you’re done! Now make sure to make your contributions in the future during the year for which you are contributing — remember, it’s time IN the market that counts, not timing the market!
What do you think? Any questions? Are you doing a Backdoor Roth IRA? If not, why not? Is there anything we can do here at WCI to make it easier for you? Comment below!
I hope this hasn’t been answered already but I’m confused about the timing. I have simple IRA funds that still need to be converted this year. Does that mean it’s too late to make this work for 2016? I’d like to make a contribution before April 18, 2017 and still do a Roth conversion for 2016. Is that still possible even though I didn’t convert my simple funds last year?
Yes, it can still be done. It just makes for interesting 8606 paperwork. You can still make a 2016 contribution to an IRA until tax day which is reported on your 2016 8606. Any conversion you make will be reported on your 2017 8606. There is no deadline for a conversion, just a contribution. It just all works out cleaner if you do it all in the same year. So in the future, do your 2018 contribution and your 2018 conversion both in calendar year 2018.
Maybe a stupid question but can you still convert the 2015, 2016 and 2017 contributions?
Thanks!
Yes, you can convert forever. The time limit is on contributions.
Thank you very much!
I have my Traditional IRA in Fidelity and Vanguard. Do I need to consolidate them in one before I can convert them? Thanks!
No, not technically. They’re all considered one big account by the IRS on form 8606.
What is the time frame for contributions? Is it too late now to contribute to Backdoor Roth in 2015? I only found out about this last year and wish I could “catch up”.
Yes, it’s too late for 2016 contributions, much less 2015.
I filled my 1040 April 2017 for 2016 and submitted electronically since I have a tax due. I have extra money on my cash account after reading the article for Back Door IRA for high income filers.
I contributed 6500 ( I am 50 y/o) to the traditional IRA in April 2017 and immediately converted this to Roth IRA the next day through my TD Ameritrade accounts.
I did not selected tIRA contribution or Roth IRA contribution nor filled out 8606 for 2016 which I have already filed and accepted by IRS. Do I have to amend my 1040 2016 now and fill out 8606 for 2016?
Thanks for the advice.
Yes, if you made an IRA contribution for 2016 and didn’t report it on your 2016 tax forms, you need to file those.
Thanks for the prompt response, I appreciate the guidance. Keep it up.
Hello Jim and WCI community,
I came across this website through Dough Rollers facebook page just today. Very informative article. I hope you can spare a few minutes of your time to answer my specific question about backdoor Roth IRA.
Brief background:
– I have a Traditional IRA amounting to $18,000 (all tax deferred); Roth IRA is about $67,000; Both is with Fidelity
– I am not qualified to make a Roth contribution due to my income
– I do not have any other retirement accounts. My employer does not sponsor any retirement plans.
– I have not made any IRA contribution for 2017
I wanted to take advantage of the backdoor IRA this year. In my research, I realized that I won’t be able to fully take advantage of the backdoor process due to the pro-rata rule that needs to be applied to the existing balance on Traditional IRA ($18,000).
I was thinking of converting my entire Traditional IRA to make the backdoor easier and to facilitate this in the future instead of doing the partial conversion every year. To be specific, here’s what I am planning to do this year:
Step 1) Convert the $18,000 Traditional IRA to Roth IRA on or before Dec 29, 2017. My understanding is that this will be reported as an income for 2017 and I will have to pay the corresponding taxes (~$6K based on my estimate)
Step 2) Having completed Step 1, it brings down the balance on my Traditional IRA to $0 which facilitates the backdoor IRA process. I would then contribute $5,500 (non deductible) on my Traditional IRA for 2017 (say on Jan 2, 2018). Since the pro-rate rule won’t apply anymore due to the $0 balance on my Traditional IRA, I would then do a conversion (2nd time) to Roth the following week or month (say, Feb 2, 2018).
Does this strategy make sense to you? I am doing essentially two conversion here. I hope I am not violating any rules. I imagine Fidelity would generate one 1099-R as a result of Step 1 and then one 8606 as a result of step 2?
I called up Fidelity and the 1st representative told me that my strategy is correct. The other one told me that I can only execute Step 2 for the 2018 contribution, which for me does not make sense since you are allowed to make contribution on the 2017 IRA until April 15, 2017.
Appreciate your thoughts on this matter.
Thank you.
Regards,
Jeff
Yes, that would work fine. Alternatively, you could make a traditional IRA contribution. It would be deductible to you since you don’t have a plan available to you at work.
The second rep is clearly wrong.
Fidelity doesn’t generate 8606s. You do. If I were you, I’d do the 2017 Backdoor Roth IRA contribution and conversion in calendar year 2017 to make your 8606s cleaner.
Oh ok. So meaning to say, I can revise Step 2 as:
Step 2) Having completed Step 1, it brings down the balance on my Traditional IRA to $0 which facilitates the backdoor IRA process. I would then contribute $5,500 (deductible) on my Traditional IRA for 2017 (say on Dec 20, 2018). Since the pro-rate rule won’t apply anymore due to the $0 balance on my Traditional IRA, I would then do a conversion (2nd time) to Roth the following week or month (say, Dec 28, 2018).
Or, would it be more simple to:
STEP1) Just contribute $5,500 (deductible) for my 2017 Traditional IRA allocation immediately (say Dec 16, 2017). This would bring up the total balance of my Traditional IRA to $23,500.
Step 2) Then convert the entire Traditional IRA to Roth by Dec 28, 2017.
Fidelity would generate a 1099-R for the entire $23,500. I would then tell my accountant to deduct the $5,500 on my 1040.
In this case, the pro-rata rule doesn’t matter anymore since I am not eligible for a retirement plan at work and all the money in the Traditional IRA are tax deferred.
The deductible option sounds like a better solution than having to go through the non deductible route since I won’t have the fill the 8606s form.
Thank you in advance for your help.
If you end up converting it next year, it’s all really the same.
Thanks, WCI, for all you do. You backdoor roth tutorial, this article, and the comments that followed, have been a game-changer for myself and my colleagues.
I have a question that surprisingly hasn’t been addressed in the comments section– for a moment I thought all my questions were answered in Comment #37, but alas I still can’t wrap my head around my situation.
In Jan 2017 I contributed $5500 to an IRA for 2016 tax year
In Jan 2017 I converted that $5500 to a Roth
In Jan 2018 I contributed $5500 to a IRA for 2017 tax year (chronic procrastinator, I know)
In Jan 2018 I converted that $5500 to a Roth
Here’s how I see my 8606 form for 2017 tax year
Line 1: 5500
Line 2: 5500
Line 3: 11000
Line 4: 5500
Line 5: 5500
Line 6: zero
Line 7: zero
Line 8: 5500
Line 9: 5500
Line 10: 1.0
Line 11: 5500
Line 12: zero
Line 13: 5500
Line 14: 5500 (is this correct? you make it very clear that line 14 should be ZERO…however, should that only be in years in which I don’t procrastinate and make late contributions?)
Line 15: zero
I believe I have pieced together enough comments to tailor it to my situation, but could you confirm the following?
Is line 2 correct at 5500 since last year Line 14 was 5500?
Is line 3 correct ?
Do I answer YES in Line 3, since I did convert a Roth in Tax year 2017
Lastly, Line 14 for Tax year 17 is not zero, as you make very clear it should be. But in the end, it doesn’t appear to matter as my taxable amount still remains zero.
Thanks so much!
That all looks correct to me. I was in the same situation a couple of years ago, and you’re right that it’s a little different than the example above since you’ve procrastinated two years in a row now.
To keep things easier moving forward, go ahead an make a contribution for 2018 as well as the conversion. If you can afford it, Monday would be a great time to do that. 😉
You’re paperwork for tax year 2018 should then match the example above.
-DoD
*Your :-p
Chronic procrastinator indeed. I would have guessed you would have learned your lesson last year!
I love that people think I can answer these questions off the top of my head. You know what I do when I get them? I open up Form 8606 and Instructions for Form 8606 and go through them and just follow the instructions. That’s it. I don’t memorize this thing and I’m no CPA and I don’t do anyone’s taxes but my own.
So line 2 for tax year 2017 comes from line 14 for tax year 2018. Yes.
Line 3 is adding line 1 and line 2. $5500 + $5500 = $11,000. I don’t want to make you feel dumb, but why wouldn’t that be correct if line 1 is right and line 2 is right? Am I missing something here or is it that simple?
Your next question, however, is very good. That little question is a relatively new addition to the form that allows some people to fill it out easier. But bear in mind the only 8606 form I can find on the internet is for tax year 2016. So line 3 seems to be asking about the current tax year. So where it asks about 2016, let’s assume it means 2017. Did you do a Roth IRA conversion in 2017? Yes you did, so that’s a yes.
Yes. Your 2017 line 14 isn’t zero because you’re a chronic procrastinator and seem to enjoy making your tax preparation more difficult than it needs to be. 🙂 But it “should be” if you would quit procrastinating. And yes, your procrastination won’t cost you any money (other than what it would earn if you would do the contribution earlier), just hassle in filling out this form.
Do yourself a favor and do your 2018 contribution and conversion in calendar year 2018 so that when you go to do your taxes in 2020 for tax year 2019 you’ll finally have a very simple 8606.
Thank you SO MUCH for this. I am new to investing and thought I was SO LUCKY to have learned how to get in a 2017 and 2018 Backdoor for my husband and I. Imagine the disappointment when I thought Vanguard screwed up the 2017/2018 thing and was going to cause me legal trouble. Then when I called to try to understand, the guy just kept repeating “you can convert as much as you want in a year! $5500…$100,000!” That may or may not be true, but I’m not that advanced, and to me, I can do $5500 per year to a Roth IRA per spouse, because that’s what WCI taught me! Your “Procrastinator’s” Tax Sheet helped so much. Thanks!
This article has been helpful but I had one additional consideration I would like some advice on. In 2016 I accidentally partially over contributed to a Roth by $1560. In 2017 I subsequently recharacterized that amount to my non-deductible tIRA and also filed an amended tax return for year 2016. Then I did my tIRA nondeductible contribution for 2016 of $5500. I subsequently converted the whole amount into my Roth IRA. The original $1560 had some gains (it was about $1670 total), so when I converted I knew I would owe tax on that. My 1099R from Vanguard lists the $1670 but lists the taxable amount as zero. To “fix” this I put in turbotax that my basis was $1560, thereby I believe indicating the remaining $110 was taxable. Is this correct? Also, why wouldn’t Vanguard know the correct taxable amount or list my basis somewhere instead of me luckily knowing (or I guess looking up) what it was?
I think that’s right, but the best way to check is to look at the 8606 in “Forms Mode” and make sure the tax due looks right.
Vanguard looks at keeping track of that stuff as your problem. I’ve had similar issues.
Thanks. I took a look and it looks correct. Appreciate your input as always.
Thank you for your article,
What do I put in line 6 [Enter the value of all your traditional, SEP and SIMPLE IRAs as of December 31st, 2017, plus any outstanding rollovers. ] for 2017, if in January 2018 I rolled over my SEP-IRA into employer 401k and made a late contribution to a non-deductible traditional IRA with a subsequent conversion to Roth?
Just answer the question. What was the value of your SEP-IRA on Dec 31st? Put that. It’ll work out.
Hmmm… in the text of the post it says: “Line 6 is the total value of your tIRA on December 31st, this is the information that will affect the pro rata rules”. So, why get rid of any traditional IRAs by rolling them over, if that money is still going to be a subject to a pro rate rule?
Thank you.
Not sure I understand what you’re asking. You transfer money from a traditional IRA to a 401(k) precisely because then it does not show up on line 6 and is not subject to a pro-rata rule.
Sorry, what I meant is:
Why would one roll over SEP or simple IRA accounts into 401k prior to doing the whole backdoor thing with the non-deductible traditional IRAs, if the form 8606 is still asking me to report those SEP or simple IRA money in line 6? …but I think the answer is that for the year 2017 I will answer $0 in line 3 and will never make it all the way to line 6.
For 2018, when I actually have to fill line 6, that value will truly be $0
Just work through the 8606 questions and it’ll become obvious why you want $0 in line 6 of the year you do the conversion step of the Backdoor Roth IRA.
Thank you for your help.
Hello WCI,
I recently learned about the Backdoor Roth and plan to do it this year (2018). I finished training in 2017 and has been working as an attending. I have significant rollover IRA from previous work, residency and fellowship, and did not convert to Roth in 2017. My question is would I be able to take advantage of the lower tax margin from 2017 if I convert to Roth before filling 2017 tax?
Another possible way that I learn from this website is to get a locum and open an individual 401k. If I earn a small amount, let’s say just $1k on locum, would it be ok to transfer all my roller ira, around $100k to the individual 401k to do Backdoor Roth this year?
No. You should have done the Roth conversion before Jan 1st.
You can still do a Backdoor Roth IRA for tax year 2017 though. No tax cost to that. But you need to do something with the rollover IRA before the end of the year- convert it despite your higher tax rate or roll it into a 401(k). Yes, you could do an individual 401(k) and roll the rollover IRA in there.
2 questions/issues:
1. Do you have or know of a similar “hack” or description of how to do this in H&R Block’s software (formerly known as TaxCut)?
2. I have a slight wrinkle to the situation you describe here. We not only are “procrastinators” but are perennially so. In other words (don’t kill me) we made our backdoor roth contribution for tax year 2016 in calendar year 2017; and we made our backdoor roth contribution for tax year 2017, this year (calendar 2018). Because Vanguard would not let us immediately make the conversion, our $5500 gained a small amount of interest, so we received a 1099-R for $5501.
I don’t know of any bloggers that have done this. I know The Finance Buff has done it for “on-time” contributions, definitely via Turbotax but also I think via H&R Block. Why not take a few screenshots as you work your way through and send me a guest post about it?
So I just converted 5500 to a Roth IRA for 2017, and 5500 for 2018. It was the first time I’ve done this. My traditional IRA in Vanguard is 0 dollars. I did it the week before tax day. However, I am confused about why I would answer “no” to line 3. It asks if I did a Roth conversion and I did. Why would I answer no? Anyone? We are in the process of filing our taxes (late).
Are you filling out an 8606 for 2017 or for 2018? Which year did you do the conversion step? If you are filling out the form for 2017 and you converted in 2018, then the answer is no.
Hello WCI,
My wife and I have been doing the backdoor Roth IRA for a few years. We have always contributed and converted the following calendar year (we are procrastinators), before April 15. In particular, we contributed to non-deductible IRAs and converted to Roth IRA in March 2018 for the calendar year 2017.
Now, we have to roll over funds from our 401(k) plans to either an IRA or a solo 401(k). The pros and cons of IRA vs Solo 401(k) are beyond the scope of this post, but I was wondering if rolling over to an IRA in 2018 will trigger taxes via the pro-rata rule due to the 2017 calendar year backdoor Roth IRA done in March 2018.
I have tried looking at the form 8606, but can’t figure it out. I am skeptical my accountant will know or if I can trust his answer. Any help would be appreciated.
Yes, it will cause the pro-rata rule to come into effect because you have IRA money on December 31st of the year you did a conversion. Why not the solo 401(k) if you already have some self-employed income?
I’m a recent graduate and I’m a W2 employee with no 401k at my current job. It seems that my only option for tax deductible savings is a traditional IRA, which means I would not be able to do backdoor roth IRA (if I’m keeping money in the traditional IRA)? Are there any other tax efficient strategies I can utilize? I’m planning on buying your book and learning more about finances which are completely new to me. Are there any pages about people like me without a 401K available to them?
3 options:
# 1 Get your employer to put a 401(k) in place
# 2 Get a new job that offers a 401(k) or become an independent contractor at least part-time and open an individual 401(k)
# 3 Invest in taxable
It’s okay to do a tax-deductible traditional IRA. If you get a 401(k) in the future, you can roll it in there and then start doing Backdoor Roth IRAs.
How costly is it to the employer to make 401k available to his employees?
Depends. If he passes all the costs on to the employees with high expense investments it could be free to him.
Thanks so much for the great info…and the hand-holding!
My question:
In April 2018, I filed an extension on my 2017 taxes so I could recharacterize my 2017 Roth contribution to a Trad. I did this, but I haven’t yet converted back to a Roth to complete the backdoor. The extended deadline for October is coming up. If I finish the backdoor conversion now, will I report this on my 8606 for 2017 or 2018?
Conversions are reported on the the tax form for the year in which the conversion takes place. So 2018.
Hello WCI,
We received a CP2000 notice from the IRS claiming that we underpaid our 2016 taxes as a result of IRA distribution in 2016.
This is what actually happened:
We had put our 2015 and 2016 ROTH IRA contributions on autopilot in 2015 and 2016. After realizing our income was too high to make a direct contribution, we filed an extension for our 2015 tax return and did the following in 2016:
– we recharacterized our 2015 ROTH contribution and converted the entire amount back to ROTH.
– we recharacterized our 2016 ROTH year-to-date contribution and converted the entire amount back to ROTH.
– we made a 2016 lump sum, non-deductible contribution and converted the entire amount back to ROTH.
How do we fill out the corrected form 8606 for tax year 2015 and 2016?
We’re also planning to submit a letter to the IRS explaining what happened along with copies of monthly statements showing the recharaterization and conversion. Would that be enough?
Any feedback would be greatly appreciated!
Would you like me to list line by line amounts for both years or have you tried to fill them out already and have a question about a particular line?
Yes, I think it would be wise to attach an explanation when you file your 1040X with a corrected 8606.
See page 3-4 of the 8606 instructions:
https://www.irs.gov/pub/irs-pdf/i8606.pdf
Recharacterizations
Generally, you can recharacterize
(correct) an IRA contribution, Roth IRA
conversion, or a Roth IRA rollover from
a qualified retirement plan by making a
trustee-to-trustee transfer from one IRA
to another type of IRA.
Trustee-to-trustee transfers are made
directly between financial institutions or
within the same financial institution. You
generally must make the transfer by the
due date of your return (including
extensions) and reflect it on your return.
Maximum Roth IRA Contribution Worksheet Keep for Your Records
Caution: If married filing jointly and the combined taxable compensation (defined earlier) for you and your spouse is
less than $11,000 ($12,000 if one spouse is 50 or older at the end of 2017; $13,000 if both spouses are 50 or older at
the end of 2017), don’t use this worksheet. Instead, see Pub. 590-A for special rules.
1. If married filing jointly, enter $5,500 ($6,500 if age 50 or older at the end of 2017). All
others, enter the smaller of $5,500 ($6,500 if age 50 or older at the end of 2017) or
your taxable compensation (defined below) ……………………………… 1.
2. Enter your total contributions to traditional IRAs for 2017 ……………………. 2.
3. Subtract line 2 from line 1 …………………………………………….. 3.
4. Enter: $196,000 if married filing jointly or qualifying widow(er); $10,000 if married
filing separately and you lived with your spouse at any time in 2017. All others, enter
$133,000 ………………………………………………………….. 4.
5. Enter your modified AGI for Roth IRA purposes (discussed earlier) …………… 5.
6. Subtract line 5 from line 4. If zero or less, stop here; you may not contribute to a
Roth IRA for 2017. See Recharacterizations below if you made Roth IRA
contributions for 2017 ……………………………………………….. 6.
7. If line 4 above is $133,000, enter $15,000; otherwise, enter $10,000. If line 6 is more
than or equal to line 7, skip lines 8 and 9 and enter the amount from line 3 on
line 10 ……………………………………………………………. 7.
8. Divide line 6 by line 7 and enter the result as a decimal (rounded to at least 3
places) ……………………………………………………………. 8.
9. Multiply line 1 by line 8. If the result isn’t a multiple of $10, increase it to the next
multiple of $10 (for example, increase $490.30 to $500). Enter the result, but not
less than $200 ……………………………………………………… 9.
10. Maximum 2017 Roth IRA Contribution. Enter the smaller of line 3 or line 9. See
Recharacterizations below if you contributed more than this amount to Roth IRAs
for 2017 …………………………………………………………… 10.
Instructions for Form 8606 (2017) -3-
Page 4 of 12 Fileid: … ions/I8606/2017/A/XML/Cycle09/source 12:33 – 22-Feb-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
However, if you timely filed your return
without making the transfer, you can
make the transfer within 6 months of the
due date of your return, excluding
extensions. If necessary, file an
amended return reflecting the transfer
(see Amending Form 8606, later). Write
“Filed pursuant to section 301.9100-2”
on the amended return.
No recharacterizations of conversions
made in 2018 or later. A
conversion of a traditional IRA to a Roth
IRA, and a rollover from any other
eligible retirement plan to a Roth IRA,
made in tax years beginning after
December 31, 2017, cannot be
recharacterized as having been made to
a traditional IRA. If you made a
conversion in the 2017 tax year, you
have until the due date (with extensions)
for filing the return for that tax year to
recharacterize it.
Reporting recharacterizations. Treat
any recharacterized IRA contribution,
Roth IRA conversion, or Roth IRArollover from a qualified retirement plan
as though the amount of the
contribution, conversion, or rollover was
originally contributed to the second IRA,
not the first IRA. For the
recharacterization, you must transfer the
amount of the original contribution,
conversion, or rollover plus any related
earnings or less any related loss. In
most cases, your IRA trustee or
custodian figures the amount of the
related earnings you must transfer. If
you need to figure the related earnings,
see How Do You Recharacterize a
Contribution? in chapter 1 of Pub.
590-A. Treat any earnings or loss that
occurred in the first IRA as having
occurred in the second IRA. You can’t
deduct any loss that occurred while the
funds were in the first IRA. Also, you
can’t take a deduction for a contribution
to a traditional IRA if you later
recharacterize the amount. The
following discussion explains how to
report the four different types of
recharacterizations, including the
statement that you must attach to your
return explaining the recharacterization.
1. You made a contribution to a
traditional IRA and later recharacterized
part or all of it in a trustee-to-trustee
transfer to a Roth IRA. If you
recharacterized only part of the
contribution, report the nondeductible
traditional IRA portion of the remaining
contribution, if any, on Form 8606, Part
I. If you recharacterized the entire
contribution, don’t report the
contribution on Form 8606. In either
case, attach a statement to your return…..
Thank you for prompt response!
We know we need to submit:
– 8606 (tax year 2015) for the 2015 non-deductible traditional IRA
– 8606 ( tax year 2016) for the 2015 conversion and 2016 non-deductible contribution & conversion
Still, we’re not sure how to report the recharacterized amount. Can you show us how to fill out the corrected 8606 forms line by line?
If you need professional help, here is where I keep my list of recommended resources:
https://www.whitecoatinvestor.com/tax-strategists/
If you want to do it yourself, here’s form 8606:
https://www.irs.gov/pub/irs-pdf/f8606.pdf
and the instructions to Form 8606:
https://www.irs.gov/pub/irs-pdf/i8606.pdf
Bear in mind I am not a tax attorney or an accountant and I’ve NEVER had to do a recharacterization, so whether you want to trust in anything I say beyond here is up to you. You do so at your own risk.
But when you correct an 8606, you’re filing the form as it should have been filed. It sounds like you did something that was okay, but didn’t report it correctly for your 2015 taxes. Let’s see if we can figure out how to do that for 2015.
So your 2015 8606 should basically just report the contribution. I assume you put $5500 in. So you fill that out just like the first year of a late contribution as shown above in this post and in a more updated version, in this post:
https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/
2016 is where it gets interesting. Of course, you also have ANOTHER contribution for 2016 and then converted both the 2015 contribution and the 2016 contribution plus any gains. You haven’t provided any details about any of that, so I can’t actually fill out forms for you, but suffice to say when the line asks for how much you converted, you put the full amount converted for 2016.
You understand there isn’t a line for recharacterizations on the 8606, right? A recharacterization is just fixing it so instead of a Roth IRA contribution you did a traditional IRA contribution, so that’s all you report.
In the words of the IRS:
Reporting recharacterizations. Treat
any recharacterized IRA contribution,
Roth IRA conversion, or Roth IRA
rollover from a qualified retirement plan
as though the amount of the
contribution, conversion, or rollover was
originally contributed to the second IRA,
not the first IRA. For the
recharacterization, you must transfer the
amount of the original contribution,
conversion, or rollover plus any related
earnings or less any related loss. In
most cases, your IRA trustee or
custodian figures the amount of the
related earnings you must transfer. If
you need to figure the related earnings,
see How Do You Recharacterize a
Contribution? in chapter 1 of Pub.
590-A. Treat any earnings or loss that
occurred in the first IRA as having
occurred in the second IRA. You can’t
deduct any loss that occurred while the
funds were in the first IRA.
In your situation, which is # 2 on page 4 of the 8606 instructions, it says this:
2. You made a contribution to a
Roth IRA and later recharacterized part
or all of it in a trustee-to-trustee transfer
to a traditional IRA. Report the
nondeductible traditional IRA portion of
the recharacterized contribution, if any,
on Form 8606, Part I. Don’t report the
Roth IRA contribution (whether or not
you recharacterized all or part of it) on
Form 8606. Attach a statement to your
return explaining the recharacterization.
If the recharacterization occurred in
2017, include the amount transferred
from the Roth IRA on Form 1040,
line 15a; Form 1040A, line 11a; or Form
1040NR, line 16a. If the
recharacterization occurred in 2018,
report the amount transferred only in the
attached statement, and not on your
2017 or 2018 tax return.
Example. You are single, covered by
an employer retirement plan, and you
contributed $4,000 to a new Roth IRA
on June 16, 2017. On December 29,
2017, you determine that your 2017
modified AGI will allow a full traditional
IRA deduction. You decide to
recharacterize the Roth IRA contribution
as a traditional IRA contribution and
have $4,200, the balance in the Roth
IRA account ($4,000 contribution plus
$200 related earnings), transferred from
your Roth IRA to a traditional IRA in a
trustee-to-trustee transfer. You deduct
the $4,000 traditional IRA contribution
on Form 1040. You don’t file Form 8606.
You attach a statement to your return
explaining the recharacterization. The
statement indicates that you contributed
$4,000 to a new Roth IRA on June 16,
2017; recharacterized that contribution
on December 29, 2017, by transferring
$4,200, the balance in the Roth IRA, to
a traditional IRA in a trustee-to-trustee
transfer; and deducted the traditional
IRA contribution of $4,000 on Form
1040. You include the $4,200
distribution from your Roth IRA on your
2017 Form 1040, line 15a.
Hope that helps.
Somewhat of a multipart complex question about potential 8086 screw up and account rollovers –
I think we may have messed up our 8086 last couple of years – used an accountant..
My wife used to be a 1099 and had a SEP account with Vanguard that she opened in spring 2016 and put about 20k in it. In 2017 she became an employee and had a 401k with profit sharing with her job in 2017 and 2018. She also did the Backdoor Roth conversion filing in 2015, 2016, and 2017 tax years using a Schwabb account and did not realize you not supposed to have a Sep IRA if doing a back door roth (for some reason we thought the rule of Zero in IRA applied only to traditional IRA and not SEP).
In 2019 she will be going back to 1099 at another job in town.
So – what are options here? Anyway to avoid IRS penalty for keeping the SEP and doing two backdoor conversion with SEP not being 0? What should she do now with her SEP – set up a solo 401k and roll over the SEP into it? She was told at her new 1099 position they will let her join the group’s 401k profit sharing after 1 year.
Also, what should she do with her current group 401k – roll it into the new potential solo 401k? Hold onto it the way it is? Currently she is only 20% vested for some employer contribution part of it..
What is a good account that is friendly for setting up a solo 401k and doing roll overs into it? Vanguard? Schwabb? Some of the comments mentioned there are issues with vanguard roll over?
Line 6 on Form 8606 reads: Enter the value of all your traditional, SEP, and SIMPLE IRAs as of December 31, 2017, plus any outstanding rollovers. Subtract any repayments of qualified disaster distributions (see 2017 Forms 8915A and 8915B). If the result is zero or less, enter -0-. See instructions . .
The technically correct answer is you need to file 1040Xs for 2016 and 2017 with accurate 8606s. I guess the alternative is hope the IRS doesn’t find out about the SEP balance, roll it over to a i401(k) ASAP, carry on, and plead ignorance. I think I’d just do the 1040Xs though.
Why would she be able to use another business’s 401(k)? That’s bizarre. Are you SURE she’s an independent contractor paid on a 1099?
I’d put the current (but soon to be old?) group 401(k) into the i401(k) too unless that 401(k) is really good for some reason. You don’t get additional vesting for leaving the money there, you get it for continuing to work for the employer.
Thanks for the super prompt response and for having this informational website and podcast.
Will clarify about the 1099 status and the 401k option. She signed the contract as a Locums Part time physician – just assumed she will be a 1099 based on that. They did tell her that once works 1000 hrs she would qualify for the profit sharing 401k plan. Will check with them.
She is not starting the job till February – can she open the i401k now for that purpose still in 2018? Or is she not eligible for the i401k until she actually gets the first paycheck? I don’t think she has done any miscellaneous surveys type work this year yet..
Sounds like she’s a part-time employee to me. I’d expect a W-2 if they’re offering 401(k) benefits. I don’t think she can open an i401(k) at all.
I made the mistake you warned about – made my 1st ever Roth contribution: a 2017 $5500 contribution in 2018. I converted the next day. I did NOT make a 2018 contribution and no longer plan to. Now I want to start clean and make a 2019 contribution with next day conversion. What will I have to do on my 8606 forms to correct my initial error since my situation doesn’t follow the example you give in the above post? Thanks!
Have you read the 8606 instructions and started working through the form? Is there a specific line you’re having trouble with?
In completing the Form 8606 in TurboTax I realized Line 8 might not populate. According to page 14 of Publication 590b, if Line 5 of the 8606 is equal to or greater than Line 8 of the worksheet 1-1 which is the nontaxable portion (note: highlight line 8 of worksheet 1-1 not form 8606) then it says do not complete lines 6-12 of the Form 8606.
https://www.irs.gov/pub/irs-pdf/p590b.pdf
Quick question – I am filling out the 8606 for 2018 with a late contribution that I made in 2019, and converted to Roth in 2019. Per the instructions on your website, line 4 is left blank on the 2018 8606 because line 3 says to skip the rest of Section 1 (I guess because technically the conversion wasn’t made in 2018), and then on line 4 of 2019, I am supposed to write 0 because at that point it would be asking about contributions between January 1- April of 2020…. so when would one ever write something besides 0 in line 4? Is this only for people who had a preexisting IRA in 2018 which they either took a distribution of or converted to Roth? Also, to be clear, in 2019 I will circle ‘Yes’ in line 3 and follow the rest of the instructions for a late backdoor Roth on your website (albeit for 11,500 instead of 11,000), correct?
Thanks a million,
Eric
Line 4 on your 2018 8606 is for contributions made between Jan 1 and April 15th of 2019 for tax year 2018. That is a subset of line 1, which is all contributions for tax year 2018. Obviously if you didn’t do a conversion that year, you don’t have to fill out 4 at all.
No, you don’t need a preexisting IRA, but you do need a conversion to have to do line 4.
You don’t have to circle anything. I’m not sure exactly what you will report on your 2019 8606 as I’m not entirely clear what you have actually done in 2018 and previous years.
Thank you for the reply. We hadn’t done anything in 2018 or in previous years. I am just learning all of this now. So in 2019 my wife and I both created a traditional IRA (one for each), a roth IRA (one for each), funded the traditional IRAs with 11,500 each (contributions for 2018 and 2019), and converted the full 11,500 to a Roth IRA. Now we have $0 in the traditional IRAs and 11,500 each in the Roth IRAs. We do not have any money in Traditional, SEP, or Simple IRAs. Am I correct in assuming I can use your late contribution to the backdoor roth IRA website as a template in filling out the 8606 forms?
Yea, should be very straight forward. The 2018 contributions go on the 2018 8606 and the 2019 contributions and the conversions go on the 2019 8606.
Hello
– In order to be able to do a late BACK DOOR IRA for 2018, last month I did a Roth conversion of an old t-IRA which had mingled money (so could not roll it to 401k)
– I then since opened a t-IRA in Vanguard, contributed the 5500 which has hit the account, and was about to do the Roth conversion but my accountant says I should not have done the contribution..
It seems he is not correct, would you agree? I will email him your PDF
New do this and big procrastrinator, but learning
thank you
I don’t see why you shouldn’t have done the contribution. Why does he say you should not have?
In early 2018 I made $5500 2017 contribution and I also made a 2018 contribution of $5500 shortly thereafter. I then converted all of it at once. I filled out form 8606 after reading your blog as a ‘mock draft’ of sorts and wanted to see how it compared to 8606 when my CPA completed it.
My form is basically the same as my CPAs.
Line 13: 11,000
Line 14: 0
Line 15: 11,026 (I had $26 in gains before the conversion…)
Line 17: 11,000
Line 18: 26 – taxable amount
My form stopped there, but my CPA went on to Part III.
He did:
Line 23: 0
Line 24: 16,526
Line 25a: 0
Everything else in Part III was left blank.
I haven’t seen much in your tutorials or YouTube video about Part III. Does it sound legit that he completed it? Much thanks as always.
Did you take a distribution in 2018? Last I checked neither a traditional IRA contribution nor a Roth conversion is a distribution. Section III is for distributions. But if line 25c has a zero, I guess I wouldn’t care all that much as it wouldn’t affect the tax bill.
I guess they are considering the amount I converted to the back door Roth a distribution technically? My 1099-R from Vanguard box 1 ‘Gross distribution’ is 11,025.99 with the taxable amount not determined box checked. But either way, line 4b on my 1040 is $26 so the ‘taxable amount’ is reported correctly, just threw me off that 8606 Part III ended up being completed.