No announcement yet.

Help! Confused on taxes..botched backdoor ROTH IRA, recharacterization, 1099-R

  • Filter
  • Time
  • Show
Clear All
new posts

  • Help! Confused on taxes..botched backdoor ROTH IRA, recharacterization, 1099-R

    I'm helping my BF do his taxes for the first time and I need some major help!

    Last year, he attempted to do a backdoor ROTH (income is too high to contribute directly), but was misinformed by a TD Ameritrade employee that he could directly contribute to a ROTH, so that is what he did.

    On 4/11/2016, he contributed $11,000 to a ROTH IRA ($5500 for 2015, $5500 for 2016).

    When I found out a few days later (I was very annoyed BTW), I immediately had him call TD Ameritrade to try and reroute the funds to his Traditional. Unfortunately, the funds were already in transit so they were unable to reverse the transaction. His only option was to recharacterize. He did the paperwork immediately, but unfortunately it took several days before the recharacterization took place.

    On 4/20/2016, the $11,000 entered his Traditional IRA account.

    On 8/2/2016, he actually completed the backdoor ROTH and the $11,000 moved back into the ROTH IRA.


    His 2016 Traditional IRA 1099-R:

    (1) Gross distribution $11,000 (2a) Taxable amount $11,000 (7) Distribution code 2 (early distribution, exception applies) with IRA box checked.


    His 2016 Roth IRA 1099-R:

    (1) Gross distribution $5,500 (2a) Taxable amount $0 (7) Distribution code N (recharacterized IRA contribution for 2016 and recharacterized in 2016)


    Can someone walk me through how this should be reported on his taxes and form 8606?

    So confused.

  • #2
    2015 8606- $5500 contribution

    2016 8606- $5500 contribution and $11000 conversion.


    I don't think recharacterizations go on the 8606 anywhere do they? They're specifically excluded from lines 7 and 8.
    Helping those who wear the white coat get a fair shake on Wall Street since 2011


    • #3
      You can't deduct Roth-to-traditional recharacterized contributions, but since you're converting it anyway, should just be a wash.

      Is box 2b, "taxable account not determined," checked on the TIRA 1099-R? It should be.

      2015 form 8606: $5,500 on lines 1,3,14

      2016 form 8606:
      - $5,500 on lines 1,2
      - $11,000 on lines 3,5,8,9,11,13,16,17
      - $0 on lines 4,6,7,12,14,15,18 (the basis is eliminated, nothing taxable to add to the 1040 as income)
      1.000 on line 10

      What are you using you file the taxes?


      • #4
        Thanks for the replies. I'm using turbotax and for some reason the IRA portion is really confusing to me.


        • #5

          Thanks for the replies. I’m using turbotax and for some reason the IRA portion is really confusing to me.
          Click to expand...


          • #6
            As long as there's a thread on botched backdoor Roths I figure I should chime in for some opinions.  I botched my initial attempt at the backdoor Roth earlier this year by forgetting to move an old TIRA to my 401k before Dec 31.  So I just turned in paperwork to recharacterize my backdoor Roth back into the non deductible IRA I had opened to start it and I've filled out my 2016 8606 to show that I've put 5500 into a nondeductible IRA.  Now my total basis is 5500.


            So for 2017 once I get my old TIRA rolled into my 401k and once I've waited the mandatory 30 days for my recharacterization of roth back into TIRA, my understanding is that I can then contribute another 5500 into the non deductible TIRA and then convert it PLUS this year's 5500 (and it's earnings) into the backdoor Roth.  So for next year's 8606 I will have to pay taxes on the earnings from this year's contribution but the 11000 from 2016 and 2017 will not be taxed.  Do I have that right or am I confused again?  If I am confused, what do I do with this year's nondeductible TIRA (which is worth about 6000 now) in order to start a backdoor Roth for 2017 the right way?


            • #7
              After the recharacterization waiting period, you can convert it. You'll pay taxes on the earnings. You can make your 2017 non-deductible traditional IRA contribution and convert it to Roth, too.

              Your f8606 for 2017 will show the $5500 basis from 2016, a $5500 non-deductible contribution for 2017, and $11,500 conversion (assuming you earned $500) in 2017. The non-taxable fraction should be 11000/11500 (0.957), and hence you should only add your earnings to your 1040 (since they weren't taxed yet, and Roth is post-tax).