Report Backdoor Roth in TurboTax- Steps, How to Report It - ABF

To contribute directly to a Roth IRA, your income must be under a certain amount, determined by your modified adjusted gross income (MAGI). Individuals who earn above a specified income limit (based on taxpayer status) are prohibited from opening or funding Roth IRA accounts under IRS regulations. We are in the beginning of tax season and there is still time to contribute to an IRA for last year! Whether it’s a Traditional IRA, Roth IRA, or Backdoor Roth IRA, the IRS https://turbo-tax.org/ allows you to make prior-year IRA contributions up until the tax filing deadline, which is April 18th, 2023. If all of your traditional IRAs combined consist of, say, 70% pre-tax money and 30% after-tax money, that ratio determines what percentage of the money you convert to a Roth is going to be taxable. In this example, no matter how much money you convert or which IRA account you pull the money from, 70% of the amount you convert to the Roth will be taxable.

This strategy has gained popularity with some higher-income earners, notes Rob Williams, managing director of financial planning, retirement income, and wealth management at the Schwab Center for Financial Research. But the IRS hasn’t weighed in definitively on what’s allowed, so it’s helpful to understand some of the issues—and it’s highly recommended that you work with a professional accountant or tax advisor, Rob says. None of these steps directly report the current year’s Backdoor Roth IRA. However, without properly completing them, the tax return software will be unlikely to report the Backdoor Roth IRA correctly. Lastly, any established and still existing traditional IRA basis reported on previously filed Forms 8606 must be entered into the software.

Simple steps to Report Backdoor Roth in TurboTax

If you filled out the prior page right, this page should look about like this. If Vanguard (or whoever) didn’t check that box, then they had better have left box 2a blank or put a $0 in it. In general, you’ll have a 2 in box 7 and the IRA box afterward should be checked too. When you sign up for our weekly newsletter, you’ll know about our latest blog post and podcast episodes; each one containing important financial tips and tidbits for doctors and medical professionals. You can also stay up to date on our podcast by downloading the Financial Clarity for Doctors Podcast wherever you find podcasts.

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. Roth IRAs are tax-leveraged retirement accounts that allow you to grow after-tax money without paying more taxes at retirement. As a result, they are subject to specific rules that govern tax-free withdrawals.

What is a backdoor Roth IRA?

Taxpayers with higher incomes don’t qualify to contribute to a Roth IRA directly. If you’re one of these people, you can still use a Roth IRA account by using what’s known as a back door Roth IRA. The final tax document you should receive is another Form 5498 reporting the conversion of funds into your Roth IRA. The Roth IRA conversion amount should usually match the distributed amount from the 1099-R. The “backdoor” Roth IRA is not a different type of Roth IRA account. Rather, it informally refers to the method through which high-income earners can fund a Roth IRA in an IRS-sanctioned way.

You are required to give us this information if you made certain contributions or received certain distributions from qualified plans, including IRAs and other tax-favored accounts. Our legal right to ask for the information requested on this form is sections 6001, 6011, 6012(a), and 6109 and their regulations. If you do not provide this information, or you provide incomplete or false information, you may be subject to penalties. To file taxes for your backdoor Roth IRA, fill out and file IRS Form 8606 when you file your annual tax return.

How do I enter a backdoor Roth IRA conversion?

Investing involves the risk of loss, including total loss of principal. This should not be construed as individualized investing advice. Consult with your investment advisor to develop an appropriate investment strategy for your circumstances.

No recharacterizations of conversions made in 2018 or later. The amount you can contribute to a Roth IRA may also be limited by your modified AGI (see Contributions, earlier, and the Maximum Roth IRA Contribution Worksheet). Generally, a qualified distribution is any distribution from your Roth IRA that meets the following requirements. 2022 Forms 8915-F are relevant to the calculations on Form 8606, lines 6, 7, 15b, 19, and 25b. The instructions for those lines have been updated as needed. Presidentially declared major disasters are also called federally declared major disasters.

Instructions for Form 8606 – Introductory Material

You’ll have to pay taxes on 93%, or $6,510, of the converted amount. Let’s say you have $100,000 in a Traditional IRA, $7,000 of which came from non-deductible contributions. Because you’ve already paid taxes on $7,000, the IRS will not require you to pay taxes on that amount twice.

• That makes filing taxes cleaner because you can match the form 8606 with the 1099-R for the same year.
• First, the nondeductible traditional IRA contribution must be reported.
• However, after several years, it’s easy to lose track of basis, even in professional tax software, warned May. “It’s a big problem,” she said.
• You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number.

This conversion is often called a Backdoor Roth contribution. It is best if you contribute to the non-deductible IRA before the end of the year and convert the IRA into the Roth IRA before December 31st in the same year. That makes filing taxes cleaner because you can match the form 8606 with the 1099-R for the same year. If you make your 2022 non-deductible IRA contribution now (in 2023) and also convert the IRA into your Roth IRA in 2023, you will have the Backdoor Roth IRA documented over two tax years. You will have a non-deductible contribution reported on form 8606 for your 2022 tax return and a 1099-R documenting the conversion into the Roth IRA on your 2023 tax return.

The backdoor Roth may not last forever

If you have an existing Traditional IRA, SIMPLE IRA, or SEP-IRA, stop immediately. Pretend like you are baking a cake and https://turbo-tax.org/how-to-report-backdoor-roth-in-turbotax/ following a recipe. The first step is to have a clean work surface, so no debris inadvertently gets in your batter.

If you need to figure the related earnings on IRA contributions that were returned to you, see Contributions Returned Before Due Date of Return in chapter 1 of Pub. If you made a contribution or distribution while the IRA held the returned contribution, see Pub. Keep track of your basis to figure the nontaxable part of your future distributions. You don’t have to file Form 8606 solely to report regular contributions to Roth IRAs. We advised Shelly to review her Form 8606 carefully and ensure that it was correctly filled out. If she faced any issues with the TurboTax system, she could call and work with one of their representatives.