[Updated on Jan. 24, 2016 with new screenshots from TurboTax Online 2015. If you use H&R Block software, see How To Report Backdoor Roth In H&R Block Software. If you use TaxACT, see How To Report Backdoor Roth In TaxACT.]
If you did a Backdoor Roth, which involves contributing to a non-deductible traditional IRA and then converting it to a Roth IRA, you need to report it in the tax software. For more information on Backdoor Roth, see Backdoor Roth: A Complete How-To.
What To Report
You report on the tax return your contribution to a traditional IRA *for* that year and your converting to Roth *in* that year.
For example when you are doing your 2015 tax return, you report the contribution you made *for* 2015, whether you actually did it in 2015 or in early 2016. You also report your converting to Roth *in* 2015, whether the contribution was made for 2015, 2014, or any previous years. Therefore a contribution made in 2016 for 2015 goes on the *2015* tax return. A conversion done in 2016 after you made a contribution for 2015 goes on your *2016* tax return.
You do yourself a big favor and avoid a lot of confusion by doing your contribution for the current year and finish your conversion in the same year. Contribute for 2015 in 2015 and convert it in 2015. Contribute for 2016 in 2016 and convert it in 2016. This way everything is clean and neat. See Make Backdoor Roth Easy On Your Tax Return.
The screenshots below are from TurboTax Online. If you use TurboTax installed on your computer, the screens may be similar. Here’s the scenario used in the example:
You contributed $5,500 to a traditional IRA in 2015 for 2015. Your income is too high to claim a deduction for the contribution. By the time you converted it to Roth IRA, also in 2015, the value grew to $5,550. You have no other traditional, SEP, or SIMPLE IRA after you converted your traditional IRA to Roth.
If your scenario is different, you will have to make some adjustments from the screens shown here.
Before we start, suppose this is what TurboTax shows:
We will compare the results after we enter the backdoor Roth.
Non-Deductible Contribution to Traditional IRA
First we enter the non-deductible contribution to the Traditional IRA *for* 2015. Complete this part whether you contributed for 2015 in 2015 or you did it or are planning to do it in 2016 before April 15. If your contribution in 2015 was for 2014, make sure you entered it on your 2014 tax return. If not, fix your 2014 return first.
From the top, click on My Account, and then Tools.
Click on Topic Search.
Type ira contributions in the search box. Find ira contributions in the topic list. Click on Go.
Check the box for Traditional IRA.
Double-confirm you contributed to a Traditional IRA.
It’s not a repayment of a retirement distribution.
Enter the contribution amount. If you contributed in the following year before April 15 for the previous year, enter the contribution in both boxes.
This is a critical question. Answer “no.” You converted the IRA, not recharacterized or switched.
No excess contribution.
If you made non-deductible contribution for previous years (including contributing for 2014 in 2015), answer Yes; otherwise answer No.
Total basis through the previous year. If you started fresh, enter zero. If you contributed non-deductible for previous years (regardless when), enter the number on line 14 of your Form 8606 from last year.
Income too high, you knew that, right?
No deduction. Of course.
We are done for entering the non-deductible contribution to the Traditional IRA. If you only contributed *for* 2015 but you didn’t convert *in* 2015, stop here. Come back next year to finish the conversion part.
Convert Traditional IRA to Roth
When you convert the Traditional IRA to Roth, you receive a 1099-R for that year. Complete this section only if you converted *in* the year for which you are doing the tax return. In this example, we assume by the time you converted, the money in the Traditional IRA had grown from $5,500 to $5,550.
Back to Tools under My Account on the top.
Click on Topic Search again.
Type 1099-r in the search box. Find 1099-r distribution from an ira in the topics list. Click on Go.
Yes, you received a 1099-R.
Import 1099 if you’d like. I will just type it myself.
Just the regular 1099-R.
If you enter the 1099-R yourself, pay attention to the code in Box 7 and the checkboxes. My 1099-R had Box 2b checked, code 02 in Box 7 and the IRA/SEP/SIMPLE box also checked.
Good news, great.
Didn’t inherit it.
First click on “moved …” then click on “converted all …”
Didn’t move back.
After all these clicks, we have a 1099-R entry. Are we done yet?
Again? Didn’t I tell you already?
OK, find my IRA basis one more time.
Get the total value of all your Traditional, SEP, or SIMPLE IRAs from your year-end statements. If you did a clean backdoor Roth, you didn’t have any balance left on December 31 in the year you converted. You didn’t have any outstanding rollovers or outstanding recharacterization either.
That’s the end of entering the Roth conversion. You may see the running refund meter go down a little, due to the extra $50 your money earned while in the Traditional IRA before you converted to Roth. If you didn’t earn anything, the meter would stay the same.
Taxable Income from Backdoor Roth
After going through all these, would you like to see how you are taxed on the Backdoor Roth?
Click on Tools again under My Account on the top. Click on the “View Tax Summary” link.
Click on “Preview my 1040″ on the top.
Scroll down to line 15a and 15b. Line 15a shows $5,550. That’s the amount you converted to Roth. Line 15b shows $50 as the taxable amount. That’s the earning between the time you contributed to your Traditional IRA and the time you converted it to Roth. TurboTax should also generate a Form 8606 when you file.
Tah-Dah! You got money into a Roth IRA through the backdoor when you aren’t eligible for contributing to it directly. That’s why it’s called a Backdoor Roth. You will pay tax on a small amount of earnings if you waited between contributions and conversion. That’s negligible relative to the benefit of having tax-free growth on your contributions for many years.
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