Backdoor Roth late conversion in Turbotax issue

[ajpastor]

Hello WCI community.   I have a situation with Turbotax that I cannot figure out.  I contributed 5500 in April of 2016 and converted shortly thereafter.  I did the same this April.  Obviously, this is not ideal timing, but I'll do better next year, I promise.  Anyway, I have read the blog posts and I think I am filling in everything correctly, but my 8606 does not seem right.  Here is my 8606:

1.   5500
2.  5500
3.  11,000
4.  5500
5.  5500
6-12.  0
13.  5500
14.  5500
15.  0
16.  5500
17.  5500
18.  0

I cannot figure out why line 8 is 0.  I think it should be 5500.  I have messed around with the numbers in the program, but nothing seems to work.  Does this look right to you?  Thank you so much for your help.

Andy

[DMFA]

By saying your basis was $5,500 on line 2, what you're saying is that you had a 2015 contribution that you didn't convert then, meaning you contributed another $5,500 to it for 2016 (line 1).

Was last April's contribution for 2015 or 2016?  If it was converted, you should have no basis (line 2 = 0).

Your April 2017 conversion does *not* go on your form 8606 that you're filing for your 2016 taxes.

Based on what you're saying, if you made a contribution *for* 2015 and converted it *in* April 2016, then your conversion goes on line 8.

If the contribution you just made (in 2017) was *for* 2016, you report it on lines 1 and 4, meaning it comes out to zero.

So, I'm assuming the following, and I'll need you to correct me if I'm wrong:

• $5,500 contribution *for* 2015 in April 2016


• $5,500 conversion *in* April 2016


• $5,500 contribution *for* 2016 in April 2017


• $5,500 conversion *in* April 2017

This makes form 8606 read as such:

1. $5,500 (nondeductible 2016 contrib)


2. $5,500 (2015 and prior years' basis since you made/converted 2015 contrib in 2016)


3. $11,000 (1+2)


4. $5,500 (in 2017 *for* 2016)


5. $5,500 (3-4)


6. 0 (12/31/16 non-Roth IRA value)


7. 0 (distributions)


8. $5,500 (conversions *in* 2016 of your contribution *for* 2015)


9. $5,500 (6+7+8)


10. 1.000 (5/9)


11. $5,500 (8*10, non-taxable portion of conversion)


12. 0 (7*10, taxable portion of distr)


13. $5,500 (11+12, non-taxable portion of distr)


14. $5,500 (3-13, 2016 basis)


15. 0 (7-12, taxable amount to put on 1040)


16. $5,500 (=8)


17. $5,500 (=11)


18. 0 (16-17, taxable amount of conversion to put on 1040)

It will be much "cleaner" if you convert the funds you contribute *for* a year *in* that same year, e.g. make your 2017 backdoor contribution in 2017 instead of in early 2018.  Doesn't really make a difference other than filling out more paperwork, though...well, that, and less time for market exposure.

As for how to enter it into TurboTax, I don't personally use it, but here is a tutorial with pictures from another website.

[ajpastor]

Thank you very much for your reply.  Your proposed 8606 is right on I believe. I have looked at the Finance Buff tutorial and it seems like I did it correctly, but it is not for the late conversion.  I think it may be a TurboTax issue, but it's hard to say.

[DMFA]

ajpastor wrote:

Thank you very much for your reply.  Your proposed 8606 is right on I believe. I have looked at the Finance Buff tutorial and it seems like I did it correctly, but it is not for the late conversion.  I think it may be a TurboTax issue, but it’s hard to say.

Click to expand...

You will not report the conversion done *in* 2017 on your 2016 taxes.  This will create a non-deducted basis of $5,500 for 2016 which, since you've converted it anyway, really doesn't mean anything.  It's just an extra thing to document.

Contributions = *for* a year, even if made late.  For instance, a contribution made in January 2017 *for* tax year 2016 (1/1/16 - 4/17/17) still goes on your 2016 taxes due in April 2017.

Conversions = *in* a year.  Only conversions made *in* the calendar year 2016 (1/1/16 - 12/31/16) will go on your 2016 taxes due in April 2017, even if you converted contributions you made *for* 2016.

The conversion you made in April 2017, regardless of the tax year for which the funds were contributed, goes on your 2017 taxes due in April 2018.

Clear as mud?

[ajpastor]

A quick update.  I tried again to reverse engineer TurboTax to get the 8606 that you provided (and I agree with) with no luck.  In TurboTax, the only questions that I believe can cause these issues are regarding  the basis and year end value of the tIRA accounts, which are $5500 and $0, respectively, so I am not sure what else I can do but override and submit by mail.  I am surprised that no one else has had this issue.   Thank you again.