2023 Backdoor Roth IRA Home Base

[GastroMastro]

Can you please advise me how to proceed on this Backdoor screwup?

1. Spouse's 2016 Roth IRA contribution was 5500, as evidenced on Vanguard 2016 form 5498
2. In Jan 2017, realized we were OVER income limit. I thus recharacterized this to spouse's traditional IRA. I received a 1099R in January 2018 for $6381. At that time, since spouse had a SEP IRA, I did not want to deal with pro rata rule so I left it in the tIRA. However, I do not think I filed an 8606 (I looked back into my IRS archives via online transcript request, and only see a 2017 8606 for myself, not my spouse, so I can only assume I filed to file the 8606).
3. Thus, it remained in tIRA until Jan 2020 when I decided to fix this issue. I CONVERTED the entire tIRA balance which was $7319. I also simultaneously converted the entire SEP-IRA balance which was $7047. so now my total tIRA balance and SEP-IRA balance, as of 12/31/2020, was $0.

Questions:

1. So for 2020, I have $14366 of distributions, on a presumed basis (from 2017) of $5500, correct?

2. MUST I file a 2017 8606? OR can I just file the 2020 8606 on TurboTax and state that my basis was 5500?

3. If answer to #2 is yes, Just to confirm that I need to file a 2017 8606, not a 2016 8606? The Roth contribution was 5500 and the tIRA conversion was in 2017.

4. Do I just need to file a single 8606 for my spouse and send it to the IRS with a cover letter stating this error and a check for $50? If so, where exactly do I mail it (I cant find the address online)? As in, i do not need to fill in an identical 8606 for 2018 and 2019 since I did not do any recharacterizations or tIRA contributions in those yeas?

5. Does line1 of 8606, even though it says 'Enter your nondeductible contributions to traditional IRAs for 2017', does 'contribution' also include a Roth contribution that was 'converted' to the tIRA?

6. As for filling out form 8606 itself please verify:

Line 1. 5500
line 2. 0
line 3 5500
line 4 0
line 5 5500
line 6 13922.54 (7128 tIRA + 6793 SEP-IRA)
line 7 0
line 8 0
line 9 13922.54
line 10 0.395
line 11. 0
line 12. 0
line 13. 0
line 14. 5500
line 15a. 0
line 15b. 0

[TheJericho]

– I am in the phase out limit, should I calculate and contribute the exact amount? No. Do a preemptive bdrIRA and always contribute the max 6K.

So, I am unexpectedly in the phase-out limit, and sadly I did not do a preemptive bdrIRA. I contributed $5500 to a Roth IRA, and I have calculated my allowed contribution was $5360. (So close! ) Is there a particular downside to just putting that excess $140 through the backdoor conversion process and leaving the rest alone in my Roth? Seems like that would result in the least taxes, as I have had the money invested in index funds this whole time.

I have other tax protected space in a solo 401(k), so I am not particularly worried about not getting the full 6k contribution in this year.

[paindoc18]

I'm sure this has been answered before, but on my perusal couldn't find exact answer. I am looking to do Backdoor Roth for both 2020, 2021 and beyond...both my wife and I have a rollover IRA through Vanguard. Just to be clear, we have to clear out these rollover IRAs in order to do a backdoor IRA?Assuming the answer is yes to this, how does one do this most simply? Would I need a s401k to rollover into? Does Vanguard allow for this, while also have a 401k through my business?

[tew]

I've searched for an answer and didn't see one:
Does the traditional IRA contribution have to be invested or can it sit in the account as cash before converting over to the rIRA account?
Another way to ask the same thing: Are any tax rules broken by not having the 6K in a money market fund within the tIRA before it is converted to the rIRA?

[Tim]

I've searched for an answer and didn't see one:
Does the traditional IRA contribution have to be invested or can it sit in the account as cash before converting over to the rIRA account?
Another way to ask the same thing: Are any tax rules broken by not having the 6K in a money market fund within the tIRA before it is converted to the rIRA?

"I want to invest in stocks/bonds/BTC/TSLA before converting, what do I pick? No, just use a money market fund."
Your IRA has a default cash account. Leave it there.

[billy]

I'm sure this has been answered before, but on my perusal couldn't find exact answer. I am looking to do Backdoor Roth for both 2020, 2021 and beyond...both my wife and I have a rollover IRA through Vanguard. Just to be clear, we have to clear out these rollover IRAs in order to do a backdoor IRA?Assuming the answer is yes to this, how does one do this most simply? Would I need a s401k to rollover into? Does Vanguard allow for this, while also have a 401k through my business?

Its in one of the blog posts, but to answer your question directly, yes you need to clear those out if they are pretax. You are correct that the way to do that is to roll them into 401ks, whether they be through work (see if they accept rollovers) or a solo 401k. vanguard solo 401ks do not accept rollovers. fidelity, etrade have been mentioned as ones that do.

[Peds]

So, I am unexpectedly in the phase-out limit, and sadly I did not do a preemptive bdrIRA. I contributed $5500 to a Roth IRA, and I have calculated my allowed contribution was $5360. (So close! ) Is there a particular downside to just putting that excess $140 through the backdoor conversion process and leaving the rest alone in my Roth? Seems like that would result in the least taxes, as I have had the money invested in index funds this whole time.

I have other tax protected space in a solo 401(k), so I am not particularly worried about not getting the full 6k contribution in this year.

you still have to recharacterize it, so may as well move it all back, then convert.
why would you not hit 6K?

[Peds]

I'm sure this has been answered before, but on my perusal couldn't find exact answer. I am looking to do Backdoor Roth for both 2020, 2021 and beyond...both my wife and I have a rollover IRA through Vanguard. Just to be clear, we have to clear out these rollover IRAs in order to do a backdoor IRA?Assuming the answer is yes to this, how does one do this most simply? Would I need a s401k to rollover into? Does Vanguard allow for this, while also have a 401k through my business?

yes. move to your workplace plan.
vanguard solo 401k does not.

[Peds]

I've searched for an answer and didn't see one:
Does the traditional IRA contribution have to be invested or can it sit in the account as cash before converting over to the rIRA account?
Another way to ask the same thing: Are any tax rules broken by not having the 6K in a money market fund within the tIRA before it is converted to the rIRA?

well its "invested" in a money market account, which is cash.
you can put it in $GME if you want, it just might make your life better/worse.

[Larry Ragman]

The Finance Buff no longer updates the BDR tutorial for Tax Act, so one tip for those users. After entering your 1099R documenting the IRA distribution, there is a Q&A at the bottom. Answer yes to the first question: is this a Roth Conversion? You will note TA treats the conversion as taxable and bumps your tax owed. Be patient. The next module is the 8606. It notes you did a Roth conversion from your tIRA and asks your basis. Fill in $6000 ($7000 over 50) and then TA drops the tax owed back to where it should be to reflect 0 tax owed.

[Christan]

I opened a traditional IRA account with Vanguard in January 2021 and converted all to Roth shortly thereafter, indicating that it was for 2020. I have not received a 1099 from Vanguard. Does this mean I file form 8606 with my 2021 taxes and not this year?

[jfoxcpacfp]

I opened a traditional IRA account with Vanguard in January 2021 and converted all to Roth shortly thereafter, indicating that it was for 2020. I have not received a 1099 from Vanguard. Does this mean I file form 8606 with my 2021 taxes and not this year?

The 1099R for the conversion is always filed for the calendar year in which the transaction takes place. Regarding your 2020 backdoor Roth transactions:

• You will file an 8606 for 2020 to report the non-deductible TIRA contribution and
• for 2021 to report the conversion.

[TheDangerZone]

Re: 2020 taxes.

I did the backdoor roth conversion in January of 2020, we had zero in IRA balances as of 12/31/20.

I did my return with turbo tax and 8606 was triggered when filling out their worksheet about non-deductible IRA contributions. My federal return has been accepted BUT I am reviewing my 8606 and it is pretty sparse..

Line 1: 6k
Line 3: 6k
Line 14: 6k

Everything else is empty, including part II and part III. Turbotax help says that part I isn't necessary if I converted all of my tradIRA to a Roth IRA. Something seems off to have so many blank spaces, do I need to file an amendment to fill in the missing information? And isn't line 14 supposed to be zero?

[Larry Ragman]

Re: 2020 taxes.

I did the backdoor roth conversion in January of 2020, we had zero in IRA balances as of 12/31/20.

I did my return with turbo tax and 8606 was triggered when filling out their worksheet about non-deductible IRA contributions. My federal return has been accepted BUT I am reviewing my 8606 and it is pretty sparse..

Line 1: 6k
Line 3: 6k
Line 14: 6k

Everything else is empty, including part II and part III. Turbotax help says that part I isn't necessary if I converted all of my tradIRA to a Roth IRA. Something seems off to have so many blank spaces, do I need to file an amendment to fill in the missing information? And isn't line 14 supposed to be zero?

Others are more facile with the 8606, but what TT is showing you with this 8606 is that you made a nondeductible TIRA contribution in 2020. The $6k is now basis. This 8606 is not showing a Roth conversion. You say you had zero balance 12/31/20 but you did not do the Roth conversion until 1/21. How did you empty the IRA?

[TheDangerZone]

Others are more facile with the 8606, but what TT is showing you with this 8606 is that you made a nondeductible TIRA contribution in 2020. The $6k is now basis. This 8606 is not showing a Roth conversion. You say you had zero balance 12/31/20 but you did not do the Roth conversion until 1/21. How did you empty the IRA?

Thanks for your help. I did the contribution and subsequent conversion both in January 2020. If it’s not showing a conversion then I guess I have a problem.