It’s much better to go with a “clean” backdoor Roth from the get-go. If there’s any possibility that your income will be over the limit again, simply contribute to a Traditional IRA for 2024 in 2024 and convert it to Roth in 2024. You’re allowed to do a clean backdoor Roth even if your income ends up below the income limit for a direct contribution to a Roth IRA. It’s much simpler than the confusing recharacterize-and-convert maneuver. Then you only need to follow our guide for a clean backdoor Roth in How To Report Backdoor Roth In TurboTax. Find Form 1040 in the left navigation panel.

Step 2 – Make a non-deductible contribution to a traditional IRA

With a backdoor Roth IRA conversion, these income and contribution limits don’t apply. You’re done with the 1099-R form for the recharacterization. Click on “Add Another 1099-R” to add the one for the conversion if you don’t have both 1099-R forms imported already. If you didn’t do any of these recharacterizing and converting, please follow our guide for a “clean” backdoor Roth in How To Report Backdoor Roth In TurboTax (Updated).

How to Fix and Prevent Backdoor Roth IRA Mistakes

I’m going with this solution, although the form from the financial firm did not have the Box N checked, that is what actually happened, so I can defend it. You contributed $6,500 to a Roth IRA for 2023 in 2023. You realized that your income would be too high later in 2023. You recharacterized the Roth contribution for 2023 as a Traditional contribution. The IRA custodian moved $6,600 from your Roth IRA to your Traditional IRA because your original $6,500 contribution had some earnings.

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This can be done in a minute or two online at Vanguard, and it is essentially the same process as opening the traditional IRA. I do this the very next day after I make the contribution. When you transfer the money, the website will throw up a scary banner saying something like “THIS IS A TAXABLE EVENT.” That’s true.

How to Report a Backdoor Roth IRA on Turbotax

Traditional IRA contributions are tax-deferred until withdrawals are taken. When you convert your IRA to a Roth IRA, you pay taxes on your contributions and capital gains. When you withdraw from your Roth, there are no taxes because you’ve already paid them. So you only pay taxes once using the backdoor Roth IRA strategy. The backdoor Roth IRA strategy is not a tax dodge.

If you did Steps 1-5 right, this form probably doesn’t belong in your tax return. If you forgot to do the conversion step for eight months afterward, it could be a huge gain on which you’re unnecessarily paying taxes. No way to fix this one, just pay your “stupid tax” and move on. I made a 2024 Roth IRA contribution of $7,000 on March 13, 2024, because I didn’t know about the whole MAGI limit thing when I made the contribution. After becoming smarter, I recharacterized $7,137.14 (original contribution plus earnings) to a traditional IRA on November 4, 2024.

However, that rule was only for recharacterizations of conversions, not contributions. There has never been a waiting period for a recharacterization. When double-checking your tax preparer’s work, you want to concentrate on lines 2, 14, 15c, and 18, and make sure they’re a very small amount, like zero, and not a very large amount, like $7,000. The form can get more complicated if you are doing other Roth conversions at the same time or if you made a contribution for the previous year (i.e., made your 2022 contribution in 2023). On page 2 (below), you are showing the Roth conversion. I’m not really sure why you have to do this twice (since you’re just transferring the amounts from lines 8 and 11 and then subtracting them), but that’s what the form calls for.

The max for 2019 is $7,000 for a family or $3,500 for an individual, up $100 and $50 from 2018, respectively. Finally, like the Backdoor Roth, there is only a marginal gain from doing so. If my HSA-reimbursable out-of-pocket health care expenses average $4,000 a year, I gain $20 per year by saving receipts and leaving the $4,000 invested in the HSA. It’s not worth the bother or the small risk that the money might never be withdrawn tax-free. Second, a bird in hand is worth two in the bush. I’d rather get the money out tax-free now rather than rely on remembering to do it decades from now.

The second box says you contributed in 2024, not in 2023. You contributed $6,000 to a Traditional IRA for 2022 between January 1 and April 15, 2023. You contributed $6,500 to a Traditional IRA for 2023 between January 1 and April backdoor roth turbotax 15, 2024. With a Mega Backdoor Roth, you put an extra $10k into your Roth account. After paying tax on this $200, the future earnings on the $10,200 will be tax-free. If you converted to Roth within the plan, answer Yes here.

Scroll up or down on the right to find lines 4a and 4b. Line 4a shows the sum of your two 1099-R forms. That’s the earnings between the time you contributed to your Traditional IRA and the time you converted it to Roth.

TurboTax pulls up the amount of your non-Roth after-tax contributions from Box 5 of your 1099-R. If your 1099-R isn’t correct, you should work with your 401(k) administrator to have it corrected. TurboTax wants to make sure the IRA/SEP/SIMPLE checkbox is not checked. Your Roth IRA contributions will need to go through the “backdoor” many times as you build your portfolio.

Now because you caught the problem soon enough before the end of the year, you can handle all of it in the same year by following this guide. After I select, converted all the money into a Roth IRA account it doesn’t ask any further questions. Taxable amount is equal to IRA distribution on 1040. A backdoor Roth IRA allows you to get around income limits by converting a Traditional IRA into a Roth IRA.

While you’re at it, you should break the cycle of contributing for the previous year and create a new habit of contributing for the current year. Contribute to a Traditional IRA for 2024 in 2024 and convert in 2024. We already checked the box for Traditional but TurboTax just wants to make sure. I’m showing two examples — (1) a direct contribution to a Traditional IRA for the previous year; and (2) recharacterizing a Roth contribution for the previous year as a Traditional contribution. Please see which example matches your scenario and follow along accordingly.

The worksheet showing you how to do this is Worksheet 2-1 in Publication 590. Remember that if you are a low earner you can just contribute DIRECTLY to a Roth IRA and skip this Backdoor Roth IRA process. Code 7 can be used when no other code applies. Code 2 would normally have been used due to your age, but the custodian would have also had to know that the distribution was going to be a Roth IRA conversion.

This is unnecessary if you already reported the recharacterization in the previous year’s tax return as shown in our previous post. You only need to amend your previous tax return if you didn’t follow those steps. Once you’ve followed these steps, you should have successfully entered the information the software needs to properly calculate your tax return. Also, the funds that you put into the Roth are considered converted funds, not contributions. That means you must wait five years for penalty-free access to the funds in your backdoor Roth IRA if you’re under age 59½. These converted funds differ from regular Roth IRA contributions, which can be withdrawn anytime without taxes or penalties.

On Line 2, your basis is zero because you had no money in a traditional IRA on December 31 of last year (if you’ve been carrying a non-deductible IRA for years, this may not be zero). Note that TurboTax may fill this out a little differently (may leave lines 6-12 blank), but you end up with the same thing. Line 13 is the same as line 3, so the tax due is zero. An account like a traditional IRA is not an investment, of course; just like a suitcase isn’t clothing.

Note that Box 2b is checked, even though a taxable amount of $5,500.07 is being reported to the IRS. Below are the MAGI limits for direct Roth IRA contributions [2024]. If your MAGI is below the first number, you can just contribute to a Roth IRA directly. If your MAGI is over the second number, you cannot contribute at all. If your MAGI is between the two numbers, you can make a partial direct contribution (most shouldn’t bother with this, just do it all through the Backdoor). The first thing to determine is whether this post even applies to you.

Plus, it has those additional steps (to ensure you entered everything correctly) you listed above. You don’t have to do those steps, but you should so you are sure you entered it correctly. And you are probably viewing older answers in the Community or have one saved, but the most current steps are in the FAQ below. And you can search for backdoor roth in TurboTax and be directed to the same, current article at any time. Next, Turbotax will ask you the same three questions about basis and amount in the IRA at the end of the previous year that it asked at the end of the conversion section.

Money in employer sponsored plans doesn’t count in the pro-rata rule. Everything in the traditional IRA, SEP-IRA, and SIMPLE IRA, except any non-deductible contributions you made in the past, is pre-tax money. For example if your traditional IRA has $34,000 in it and you made $10,000 non-deductible contributions in the past, $24,000 is pre-tax money. Move $24,000 to an employer sponsored plan.

If you entered a 1099-R for both yourself and your spouse but you only entered one Traditional IRA contribution, you will be taxed on one 1099-R. It’s best to follow the steps fresh in one pass. If you already went back and forth with different answers before you found this guide, some of your previous answers may be stuck somewhere you no longer see. Because we did a clean “planned” Backdoor Roth, we don’t have anything left after we converted everything before the end of the same year. If you have a small balance left because of interest, enter the value from your year-end statement here.

Therefore, it is critical that you DO SOMETHING with any IRA balance you have PRIOR to December 31 of the year in which you do a Roth conversion of after-tax money. Later in this article, I’ll describe the exact options you have for what to do with this money. Two things I want you to notice on this page. First, you, as a high earner, get no IRA deduction despite contributing $6,000-$12,000 to IRAs for the year. Second, now that you’ve entered your conversion and contribution, the amount of tax due as calculated by Turbotax in the upper left (“Federal Refund $0”) hasn’t changed. That shows you that you did the whole process correctly.

Backdoor Roth IRAs impact your taxable income, and a professional can help you navigate the potential pitfalls of this useful strategy. For tax purposes, the IRS considers all your (seemingly separate) IRAs as one big account. The pro-rata rule boils down to the percentage of your total combined IRA balances that has yet to be taxed. Whatever that percentage is determines the percentage of your backdoor Roth IRA conversion that will be taxed.

In 2024, you are allowed to contribute $7,000 ($8,000 if 50+) per year for you and $7,000 ($8,000 if 50+) for your spouse. This includes all contributions to traditional and Roth IRAs. Rollovers/transfers do not count toward the annual contribution limit. If it is small, convert it to a Roth IRA along with this year’s traditional IRA contribution and pay the tax due on it. If large, try to roll it into your employer’s 401(k) or if you have self-employment income, into your individual 401(k). Note that all this serves to do is report basis for the next year.

The $49 difference is because we have to pay tax on the $200 in earnings when we contributed $6,500 and converted $6,700. If you had less earnings, your refund numbers would be closer still. Enter the values of ALL your Traditional, SEP, and SIMPLE IRAs at the end of the year. We don’t have anything in traditional, SEP, or SIMPLE IRAs after we converted it all.

How much can that tax protection be worth compared to a taxable account? It depends on the return of the underlying investment, its tax efficiency, and the amount of time the money is left in the account. At my marginal tax rate, $10,000 earning 8% in a tax-inefficient investment over 50 years would grow to $469,000 in a Roth IRA but only $88,000 in a taxable account. More realistically, over 30 years, the use of a Roth IRA vs. a taxable account for a tax-efficient investment would still result in 29% more money.

  1. After I select, converted all the money into a Roth IRA account it doesn’t ask any further questions.
  2. Another advantage is that a backdoor Roth contribution can mean significant tax savings over the decades because Roth IRA distributions, unlike traditional IRA distributions, are not taxable.
  3. If you use H&R Block software, see How To Report Backdoor Roth In H&R Block Software.
  4. If your income is below a MAGI of $146,000-$161,000 ($230,000-$240,000 Married Filing Jointly), you can contribute directly to a Roth IRA.
  5. If you contributed too much to an IRA in the past, here’s where you report that.

If yours isn’t for some reason, put in your basis (i.e., non-deductible money put into the traditional IRA but not converted out of the IRA). If you did your taxes correctly on TurboTax last year, TurboTax transfers the number here. If you made non-deductible contributions for previous years (regardless of when), enter the number on line 14 of your Form 8606 from last year. Repeat the previous steps to add another if you have more than one.

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