TaxAct used to be a low-cost alternative to the big two tax prep software TurboTax and H&R Block. However, its pricing strategy changed in recent years. Now TaxAct is just as expensive or sometimes even more expensive than TurboTax and H&R Block. The good news is another low-cost alternative emerged. It’s called FreeTaxUSA.
FreeTaxUSA is purely online; there is no download option. It uses the freemium pricing model. Federal tax filing is free, regardless of the complexity of the return. After you are done with federal, if you need to file a state return, it costs $12.95. They also offer a deluxe upgrade for $6.99, which includes audit assist, priority support, and amended returns. All told, the total cost is under $20 and it includes e-filing for both federal and state.
Low cost is good and all, but how good is the software? I decided to test-drive it with a slightly complicated subject: reporting the Backdoor Roth. Over the years I created guides for how to report Backdoor Roth in TurboTax and how to report Backdoor Roth in H&R Block. A reader asked me to also create a guide for doing the same in FreeTaxUSA.
Just as a refresher, a Backdoor Roth involves making a non-deductible contribution to a Traditional IRA followed by converting from the Traditional IRA to a Roth IRA. Both the contribution and the conversion need to be reported 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 *during* that year.
For example, when you are doing your tax return for year X, you report the contribution you made *for* year X, whether you actually did it during year X or between January 1 and April 15 of the following year. You also report your converting to Roth *during* year X, whether the contribution was made for year X, the year before, or any previous years. Therefore a contribution made during the following year for year X goes on the tax return for year X. A conversion done during year Y after you made a contribution for year X goes on the tax return for year Y.
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. I called this a “planned” Backdoor Roth — you’re doing it deliberately. Don’t wait until the following year to contribute for the previous year. Contribute for year X in year X and convert it during year X. Contribute for year Y in year Y and convert it during year Y. This way everything is clean and neat. If you are already off by one year, catch up. Contribute for both the previous year and the current year, then convert the sum during the same year. See Make Backdoor Roth Easy On Your Tax Return.
FreeTaxUSA
Here’s the scenario we’ll use as an example:
You contributed $6,000 to a traditional IRA in 2020 for 2020. Your income is too high to claim a deduction for the contribution. By the time you converted it to Roth IRA, also in 2020, the value grew to $6,200. You have no other traditional, SEP, or SIMPLE IRA after you converted your traditional IRA to Roth. You did not roll over any pre-tax money from a retirement plan to a traditional IRA after you completed the conversion.
If your scenario is different, you will have to make some adjustments from the screens shown here.
Before we start, suppose this is what FreeTaxUSA shows:
We’ll compare the results after we enter the Backdoor Roth.
Convert From Traditional IRA to Roth
The tax software works on income items first. Even though the conversion happened after the contribution, we enter the conversion first.
When you convert from Traditional IRA to Roth, you will receive a 1099-R. Complete this section only if you converted *during* the year for which you are doing the tax return. If you only converted during the following year and you don’t have a 1099-R yet, skip to the next section “Traditional IRA Contribution.” You’ll complete this section next year.
In our example, by the time you converted, the money in the Traditional IRA had grown from $6,000 to $6,200.
Click on Yes when it asks you about the 1099-R.
It’s just a regular 1099-R.
Enter the 1099-R exactly as you have it. Pay attention to the code in Box 7 and the checkboxes. It’s normal to have the same amount as the taxable amount in Box 2a, when Box 2b is checked saying “taxable amount not determined.” Pay attention to the distribution code in Box 7. My 1099-R has code 2, and the IRA/SEP/SIMPLE box is also checked.
Right after you enter the 1099-R, you will see the refund number drop. Here we went from a $1,540 refund to $264. Don’t panic. It’s normal and temporary. The refund number will come up when we finish everything.
It asks you about Roth conversion. Answer Yes to conversion and enter the converted amount. This whole 1099-R is the result of a Roth conversion.
You are done with this 1099-R. Repeat if you have another 1099-R. If you’re married and both of you did a Backdoor Roth, pay attention to whose 1099-R it is when you enter the second one. You’ll have problems if you assign both 1099-R’s to the same person when they belong to each spouse.
It asks you about basis carried over from previous years. If you did a clean “planned” backdoor Roth every year, although technically the answer is Yes, you have nothing to carry over from year to year. In our simple example we don’t have any. If you do, get the number from line 14 of Form 8606 from your previous year’s tax return.
Not impacted by a disaster.
Now continue with all other income items until you are done with income. Your refund meter is still lower than it should be, but it will change soon.
Traditional IRA Contribution
Find the IRA Contributions section under the “Deductions / Credits” menu.
Choose Yes and enter your contribution. In our example you contributed $6,000 directly to a Traditional IRA. If you originally contributed to a Roth IRA and then you recharacterized the contribution as traditional contributions, enter the amount in the Roth IRA box and choose Yes below when it asks you whether you recharacterized.
Your refund number goes up again! It was a refund of $1,540 before we started. It went down a lot and now it’s back to $1,496. The $44 difference is due to paying tax on the $200 earnings before we converted to Roth.
We don’t have a SEP or SIMPLE account.
Withdrawal means pulling money out of a Traditional IRA back to your checking account. Converting to Roth is not a withdrawal. Answer ‘No’ here.
In our example, we don’t have any basis carried over from the previous years. We don’t have any money in traditional, SEP, or SIMPLE IRAs as of the end of the year (we already converted to Roth by then). Our contribution was made during the year in question, not in the following year.
It tells us we don’t get a deduction. We know. It’s because our income was too high. That’s why we did the Backdoor Roth to begin with.
If you only contributed *for* last year but you didn’t convert until the following year, remember to come back next year to finish the conversion part.
Taxable Income from Backdoor Roth
After going through all these, let’s confirm how you’re taxed on the backdoor Roth. Click on “View 1040” on the right-hand side.
Look for Line 4 in Form 1040.
It shows $6,200 in IRA distributions and only $200 is taxable. If you are married filing jointly and both of you did a backdoor Roth, the numbers here will show double.
Tah-Dah! You got money into a Roth IRA through the backdoor when you aren’t eligible to contribute to it directly. You will pay tax on a small amount in 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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Cori says
It would be awesome if you could review this software compared to your experience with a more expensive program like TurboTax☺️
Harry Sit says
It appears it’s not able to import W-2s from payroll providers or 1099s from financial institutions. If you don’t mind typing in the numbers, I think the software works just fine.
Pramod says
Thank you very much for this post!
michael says
Thanks for the review! Based on your recommendation I just completed my taxes on FreeTaxUSA. It was very user friendly and saved me lots of money vs Turbotax in taxprep fees.
Sam says
I have run into a snafu where I didL
1. Contributed to Roth
2. recharacterized to traditional
3. backdoor roth from #2
The software can’t seem to comprehend this because I input 5500 into my roth ira contribution summary, NOT the traditional. Is there a work around?
Sam says
Adding on, could I just say I contributed to a Traditional IRA instead of a Roth, it fixes the issue if I do this because the software then realizes it is non deductible.
Harry Sit says
I don’t see an obvious way to enter the contribution as Roth and then say it was recharacterized to Traditional. Of course you still enter the 1099-R for the distribution from the Roth IRA for the recharacterization. Since a recharacterized contribution is as if you contributed to Traditional to begin with, I guess it’s OK to enter the contribution as Traditional. Please confirm with FreeTaxUSA support.
Chuck says
Thank you for this article. I got a little freaked out when I couldn’t figure out where everything goes, but this was clear and easy, and I ended up paying tax on $3.
Tim says
I notice you left Box 2a on the 1099-R blank?? Whereas on my 1099-R from Vanguard its shows $5500 in 2a (taxable amount). I contributed to my Traditional then recharacterized the next day, per the Backdoor Roth protocol.
Here’s my question, am I to leave the 2a BLANK in FreetaxUSA or follow my actual 1099-R and insert the $5500? Does either way affect the auto-generation of the 8606 form in the software?
Harry Sit says
You should enter your actual 1099-R. The protocol is to convert the money from the traditional IRA to a Roth IRA. I hope you actually converted, not recharacterized. They are different.
Ryan says
Tim, if your 1099-R has box 2b (“Taxable amount not determined”) checked, it’s fine that box 2a has a non-zero value.
If you look at the IRS instructions for form 1099-R [1], you will see this: “Box 2b. If the first box is checked, the payer was unable to determine the taxable amount, and box 2a should be blank, except for an IRA. It’s your responsibility to determine the taxable amount”
Assuming you actually did “convert” and not “recharacterize”, then this indicates the value of 2a is bogus and can be ignored.
See also: https://www.bogleheads.org/forum/viewtopic.php?t=88861
[1] https://www.irs.gov/pub/irs-pdf/f1099r.pdf
Tim says
Harry, Ryan, thanks for taking the time, that really helps!
Harry Sit says
I replaced the screenshot with box 2a filled in. It still works the same. Thank you for bringing it up.
Mike says
FreeTaxUSA workaround for inherited IRA minimum required distribution (MRD) with backdoor Roth (2018 tax year returns):
If you have an inherited traditional IRA with NO BASIS and an owned traditional IRA nondeductible contribution converted to a Roth IRA, FreeTaxUSA will not correctly generate form 8606. You can work around this by deliberately omitting the IRA/SEP/SIMPLE “X” in box 7 of your 1099-R, which I discovered by trial and error and an educated guess.
If you don’t do this, FreeTaxUSA incorrectly includes your MRD on form 8606, causing an incorrect prorated allocation of taxation between the MRD and Roth conversion. My total taxable distribution forwarded to form 1040 line 4b was correct as was my tax owed, but my form 8606 was incorrect, as data from inherited and owned IRAs should not be included on the same form 8606. MRD from an inherited IRA with NO BASIS gets added directly to form 1040 line 4b without generating a form 8606 of its own, and should not be co-mingled with a form 8606 for an owned traditional IRA to Roth conversion.
RothIRAGuy says
Lifesave man! I was going crazy … the backdoor ROTH had me paying thousands more. You just saved me $2k! 😉 Go you!
Nathan says
My backdoor Roth conversion for 2019 was a little more complicated because I had $3 in profit on the initial contribution from the money market account before I did the Roth conversion. My issue with FreeTaxUSA is how the software is filling out my Form 8606. It leaves lines 8-11 blank. Still gets to the correct total on line 13. It also is still doing 16-18 properly and showing $3 as the taxable amount (line 18). I’m wondering if I did something wrong or if there is a tax software issue. Will those lines being blank cause some sort of issue in an audit situation? White Coat Investor’s site is where I find that lines 8-11 should be filled in.
Harry Sit says
Lines 8-11 are interim steps. When you convert 100%, you are allowed to skip some interim steps.
Nathan says
Thanks so much for the quick response! Great tutorial.
Bob says
There’s a new screen for 2019.
In the deductions section, after the IRA Contributions screen
“2019 IRA Withdrawal Information”
“2019 Contributions Withdrawn from a Traditional IRA”
“Did X withdraw any traditional IRA contributions by the tax filing due date?”
“Enter any 2019 traditional IRA contributions X withdrew”:
Since I converted my entire Traditional IRA to a Roth IRA (which I indicated in the Income section) do I need to fill out info here?
Full help text below
What is a withdrawal of 2019 traditional IRA contributions?
If you made traditional IRA contributions in 2019, you can withdraw them tax free by the due date of your 2019 return (or, if you filed an extension, by the extended due date) as long as you didn’t take a deduction for the contribution and you withdraw any interest earned on that contribution.
Any withdrawn interest is considered taxable income and should not be treated as part of your contribution withdrawal.
Generally any contributions withdrawn after the due date (or extended due date) will be considered taxable distributions and will be reported to you on a 1099-R. If you haven’t reached age 59 1/2, the 10% additional tax on early distributions may apply.
Harry Sit says
You answer ‘No’ to that question. Converting to Roth is not a withdrawal. I added a screenshot to the post.
Bob says
Thank you!
JD Scott says
Extremely helpful article. Last two years I filed with different more expensive software that did not generate the 8606 form for the Roth backdoor. FreetaxUSA is the best and cheapest tax software I have used. Thanks for the info!!!
PanTaras says
Great Article!
However, I followed the instructions and checked the output of form 8606. FreetaxUSA vesrion left lines 6 -12 blank (no values at all). I compared it with other manual 8606 filling instruction https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/ – this example has values in lines 6-12.
Does anybody know if thats an issue?
Thanks!
Harry Sit says
It’s not an issue. Those lines are interim steps, which the software is allowed to skip when you converted 100%.
Matt says
Performed a spousal backdoor Roth in 2019; however, our AGI fell within the phaseout range ($193k-$203k) so now my spouse’s contribution is partially deductible. Is there a way to force the software to make this contribution non-deductible? I was able to do that in TurboTax, but have not been able to figure it out with FreeTaxUSA.
Harry Sit says
If you converted during 2019, it’s not necessary to force it. The partial deduction makes your conversion partially taxable, which is offset by the partial deduction. You get the same end result. If you converted in 2020, having a lower AGI in 2019 isn’t necessarily bad. It may qualify you for some stimulus money.
Derwin says
Great post! Saved me over $2k trying to figure this out!
Thank you
Hao says
Thank you so much for this article and many others. I use FreeTaxUSA to prepare our federal & CA state tax, so your instructions help.
Justin says
I use freetaxusa. I know you aren’t covering this situation, but should I be able to do the following…
My wife and I each contributed $6000 to Roth IRAs in 2019. Our income was too high so in early 2020 we recharacterized those contributions (and associated earnings – let’s say $7000 each by then) to traditional IRAs and then a month later (why brokerage made us wait a month I have no idea) converted to Roth IRAs again. Let’s say we converted $7200 each. The recharacterization we had to explain on our 2019 tax return. We have no other traditional IRAs (basis?). Now we have to capture the conversion on our 2020 tax return. Should I expect about $2400 taxable income from all that?
Harry Sit says
That’s correct. You will have $1,200 taxable income from each 1099-R. The $6,000 contributed for 2019 recharacterized in 2020 becomes your basis carried over from 2019. In the “IRA Basis and Value” screen, you enter $6,000 in the first box (repeat for each of you).
Jason says
Thanks so much for pointing me to Freetax USA. I can’t quite understand how to do this scenario in freetax: In 2020 I made a contribution of $8500 to an IRA. $2500 counted for 2019 (because I had only contributed $3500 in 2019) and $6000 counted for 2020. I convert these to a Roth immediately so there was no growth. Vanguard’s 1099-R has $8500 in box 1. I think I know how to enter this on 8606 if I do it by hand but I can’t get it right in Freetax. Can you help? I know the 8606 is filled out correctly for 2019 ($3500) but perhaps I need to resubmit 8606 for 2019 as well?
Harry Sit says
Assuming that both your $3,500 and $2,500 for 2019 were nondeductible, your 2019 Form 8606 should’ve shown $6,000 in contributions, including the $2,500 you contributed for 2019 in 2020. In that “IRA Basis and Value” screen, you should enter $2,500 in the first box as your basis carried over from 2019.
Jason says
thanks! They are both nondeductible. The 2019 8606 had $3500 in box 1 and that is what I reported because at the time when I filed that was all we had contributed. Only after filing 2019 taxes was the remaining $2500 put into the account, so it looks like the 8606 just needs to be resubmitted with an explanation. I’ll put 2500 as my basis as I don’t think that should bring up the pro rata issue since at the end of both 2019 and 2020 the amount in the IRA was $0
Ravinatha Reddy Buchupalli says
Hello,
Due to high income, I am not eligible for deductible/tax benefits towards IRA contribution.
On 1/20/2021 I created my first traditional IRA account and deposited after tax dollars of $6000 from my checking account.
12 days later – On 2/2/2021, I transferred those funds into Roth IRA. This is also referred as backdoor Roth IRA as mentioned in this article. I choose this contribution amount towards 2020 ( as per the rule to contribute until Apr 15 2021).
Do I need to report this in this year’s tax return? I do not have Form 1099-R yet. I tried the steps mentioned in the article. However Form 5329 is generated and shown as excess contribution. How do I generate form 8606?
Harry Sit says
You report the conversion part next year when you have the 1099-R but you do need to report the contribution part for 2020. Make sure you already entered your W-2, which shows you have compensation eligible for an IRA contribution.
Ravinatha reddy buchupalli says
Harry,, can you please clarify your below comment. Are you referring to form 8606 to report the contribution? Thanks in advance.
“Make sure you already entered your W-2, which shows you have compensation eligible for an IRA contribution.”
Harry Sit says
You need compensation income (W-2 or self-employment) to be eligible for a traditional IRA contribution. If you followed all the steps after the heading “Traditional IRA Contribution” but you didn’t enter any eligible compensation income before you entered the IRA contribution, the software would generate Form 5329 showing the contribution as excess contribution. That could be one reason you got a Form 5329 and not a Form 8606.
Backdoor Conversion Question says
I have a situation where there is literally enough small “interest” that accrued after my conversion was complete for the year.
As a result, my technical account balance is enough to round to $1 by the end of 2020 (the $1 was converted over in this year’s backdoor conversion)
From following this guide, it seems this makes the non-taxable portion $5999 instead of $6000.
Would you wait until 2021 taxes to show that $1 so that it’d keep te amount reported in line 13 equal to the contribution made for the year?
Harry Sit says
Whether your balance in the traditional IRA was $1 or $1,000 at the end of the year, you enter that balance in the second box in the “IRA Basis and Value” screen. If that results in $5,999 non-taxable and $1 taxable, so be it. You pay tax on $1. No big deal. You’ll have a value on your Form 8606 line 14. That’s your basis carried over to the following year. Next year you enter that basis value in the first box in the “IRA Basis and Value” screen. The software will take care of the necessary calculation.
Backdoor Conversion Question says
Hi Harry — thanks for the prompt reply. So if I’m following, what you mean is what I’m effectively doing is establishing my end of 2020 basis as $1 since I’m rounding up to the nearest dollar by the end of Dec 31, 2020.
That way, once adding my $6000 contribution for 2021, the conversion of the full account would be for $6001 in 2021 taxes since the full $6001 was converted to zero the account back out (which I recently just did for 2021)?
Harry Sit says
Your end of year balance is on your account statement. Your broker will also report it to the IRS on Form 5498. You can’t change that number. Just enter it from your account statement as a matter of fact. Your broker will report the conversion amount in 2021 to you and to the IRS on Form 1099-R next year. You can’t change that number either. Again just enter it as a matter of fact. You don’t have any other choice. The software will work out the calculation. If it makes you pay tax on $1 this year, you pay tax on $1. If it makes you pay tax on $1 again next year, you pay tax on $1. Just let the software do its job and follow along.
Alex says
I am using FreeTaxUSA for the first time, and I did a standard backdoor Roth in 2020. (In 2020, I made a nondeductible contribution of $6,000 to a traditional IRA, I converted the $6,000 to a Roth IRA, and I had $0 basis in traditional IRAs for prior years.) FreeTaxUSA produces Form 8606 with $6,000 on lines 1, 3, 5, 13, 16, and 17; $0 on line 21; and blanks everywhere else; AND on line 13 there is an asterisk (*) which states “*From Worksheet 1-1 in Publication 590 B.” I think the end result is correct, but the $0 on line 21 and the reference on line 13 is throwing me off. Does this seem ok?
Harry Sit says
That’s OK. Worksheet 1-1 is an alternative to working through lines 6-12. A $0 on line 21 will be treated as blank.
Steve says
I keep going through the steps as listed above but despite having an income that phases me out of IRA deductions, FreeTaxUSA keeps giving me a $6,000 IRA deduction. However, it also keeps 1040 line 4b as $6,000 so they cancel one another out and the final refund appears correct. Looking at form 8606, lines 1-15 are blank. Lines 16 and 18 read 6000.
While I know the math is right, I’d rather not have my return flagged for this… Any help would be greatly appreciated.
Harry Sit says
Double-check your W-2 box 13. If the software thinks you’re not covered by a workplace retirement plan and therefore there’s no income limit, it’s going to give you the deduction for your Traditional IRA contribution.
Steve says
That fixed it … except the problem is my W-2 box 13 is unchecked. I’m wondering if this is in error, because we in fact do have a self-directed 401k profit sharing program setup (which we fill to the ~57k max allowable). I’ll reach out to our accountant / payroll company about if we should correct our W-2 to reflect this (or if there’s a reason it’s unchecked…). Assuming it’s not an error, is there any problem with proceeding with filing with that box checked in the software even if it’s not in real life?
Your help is much appreciated, Harry. Thank you!
Harry Sit says
It sounds like an error on the W-2. I don’t think there’s any problem if you treat yourself as covered by a retirement plan even when you’re not.
Steve says
Update: The W-2 is incorrect (as suspected). Many thanks!
Sami says
Thank you very much for the walkthrough. I am running into an issue which is a result of my own mistake, but I’m hoping you can provide some guidance.
-discovered backdoor Roth IRA in December 2019
-contributed to traditional IRA (both for me and spouse) in December 2019
-funds did not settle immediately, so could not convert to Roth until January 2020. In addition, $2 interest was earned in the meantime.
-filed 2019 taxes with form 8606 which showed $6000 nondeductible traditional IRA contribution in 2019 with total basis of $6000
-did 2020 traditional IRA contribution followed by Roth conversion in 2020
Now, when trying to file with freetaxusa, I think I am doing something incorrectly.
-1099-R for both me and spouse shows gross distribution of $12002 each with taxable amount of $12002 (on each of our 1099-R forms). Taxable amount not determined is checked.
-I plugged in the 1099-R information into freetaxusa. It asks how much of the $12002 basis I converted to Roth. I converted both the 2019 contribution and 2020 contribution in 2020, so I put the whole $12002 (for each of us).
-Then it asks if I’ve ever had a nondeductible traditional IRA contribution on any prior year tax return. I entered yes because I made the original $6000 traditional IRA contribution for each of us in 2019 (although it couldn’t get converted till 2020 like I mentioned).
-Next screen asks for total basis, if any, in traditional IRAs for 2019 and earlier years. I entered $6000 here per form 8606 from 2019 return.
-Repeated this for spouse
-Then I went to IRA contributions under common deductions.
-Enter any traditional IRA contributions Sami made during 2020: I entered $6000 for each of us.
-Then it shows the screen where it says “IRA deduction summary”. Here it is showing IRA deduction of 12000. I was under the impression that this should be 0? And the refund appears to decrease during the process, and then partially increase but not back to the number it was before entering the IRA information.
I know not converting 2019’s contribution till 2020 made this messy, but do you know what I am messing up here? Thank you so much for your time.
Harry Sit says
It sounds like you entered them correctly. The software thinks your IRA contributions are deductible. Make sure you already entered your income that exceeds the income limit and double-check your W-2 box 13. See comments #23 and #25.
Sami says
Thank you very much for your reply. I checked retirement plan on one of the W2s and now the IRA contribution no longer shows as deductible. It seems correct now.
Ondrej B says
This is my first time doing anything IRA-related. I contributed to IRA and rolled over to ROTH in 2021 and now I’m confused about how to report it. (I know – should have done it in time..)
After going through all the steps (skipping 1099-R) I can see a $6000 IRA deduction but I don’t believe that is right. It never offers me the “IRA Basis and Value” screen. Is that because of the missing 1099-R?
Also, I’m over the income limit for the IRA to be deductible. However, W2 box 13 is unchecked (employer offers 401k but I did not contribute in 2020)
Am I really allowed to have this deduction?
Any help would be appreciated!
Harry Sit says
See what the IRS says about “covered by a retirement plan”:
https://www.irs.gov/retirement-plans/are-you-covered-by-an-employers-retirement-plan
If you didn’t contribute and your employer didn’t/won’t contribute to your account for 2020 either, your W-2 box 13 is correct. If you’re not covered by a retirement plan and you’re single or your spouse isn’t covered by a retirement plan either, your contribution to the IRA is always deductible. So you will take the deduction in 2020 and pay tax on the conversion in 2021.
Edwin says
I’m so glad I bookmarked this page when I found it in Q1 2020 while working on my 2019 tax. Thanks for updating it to reflect the 2020 tax year Harry!
Ted says
You are a hero. Thank you thank you thank you. I hope you have a warm feeling in your heart from helping so many strangers.
Ally says
Hi Harry,
Thanks for this informative article, it’s super helpful! This is also my first year with a mega backdoor in-plan conversion, is there a work around for Freetaxusa or should i switch over to turbo tax? I been using freetaxus for the past 5 years, i really hope i do not have switch over. Thanks in advance for your response!
Regards,
Ally
Harry Sit says
I just tried it. It’s quite straightforward. You don’t have to switch to TurboTax. Here’s the walkthrough:
https://thefinancebuff.com/mega-backdoor-roth-freetaxusa.html
Ally says
Thank you so much Harry! I followed your instructions and it worked perfectly! I really appreciate the effort.
Kaitlin says
THANK YOU, you are a life saver!
Would be forever grateful if you could help re: how to complete the state tax return in relation to the backdoor Roth (filing in Arkansas). For context, I did a planned Backdoor Roth of $6k.
In the State Pension & IRA Income section it says:
“Most pension and IRA distributions are eligible for a $6,000 exemption from the taxable amount. However, premature distributions from IRA accounts and certain annuities are not eligible. Annuity income is only eligible if it is from an employment-related pension plan.
Question 1: Do you have any nonqualified premature IRA distributions? YES or NO
Enter the amount of your pension and IRA distribution income, if any, that isn’t eligible for the Arkansas $6,000 exemption.
The amount of your taxable premature IRA distributions on your federal return is $0. Add any IRA distributions with a code 2 in Box 7 of your 1099-R unless they were due to death or disability. If you have any annuity income that isn’t from an employment-related pension plan, then add that amount to the number you enter below.
Question 2: Your Gross Ineligible Distributions
(Amount of gross distributions NOT eligible for the $6,000 exemption): $__
Question 3: Your Taxable Ineligible Distributions
(Amount of taxable distribution income NOT eligible for the $6,000 exemption): $__
Hoping for help re: whether to select yes or no and what numbers to put in Questions 2 and 3 if I select yes.
Harry Sit says
It looks to me 1. Yes 2. 6000 3. 0. The amount you converted is ineligible but it’s not taxable because it was after-tax money.
Kaitlin says
Thank you very much @Harry
Plicy P. says
Hi Harry,
Thanks so much for this post! It’s so helpful. I also just want to confirm I am doing this correctly.
I contributed $6000 to a traditional IRA in 2020 and immediately converted it to a Roth IRA. At the end of inputting all of my information as you advise, my taxable amount on form 1040 line 4b is “0”. I think this is correct since I made the contribution with non-deductible after tax dollars, but I just wanted to confirm.
Thanks!
Emy says
thank you so much for this article! it was extremely helpful.
i was following the steps provided. however, when i clicked on my 1040 form, it showed lines 4a and 4b (IRA distributions & taxable amount) as being the same. i’m not sure how to get it to deduct the $6000 in the taxable amount.
thank you so much!
Harry Sit says
Check your W-2 entries. Box 13 should be checked if you’re an active participant of a workplace retirement plan. See comments 23, 24, and 25.
KP says
Hello,
I could use some last minute assistance with figuring out how to help my SO properly report a late contribution for 2020 through freetaxusa. I convinced her to start doing a Backdoor Roth this year, so she made a contribution for 2020 in February 2021, and has since rolled it over into a Roth. I understand that she doesn’t have to report the rollover until next year, but I’m having trouble getting freetaxusa to generate the Form 8606 correctly to report her late contributions for 2020.
I only see two places to input this information. There is a space in the Income section, but that requires more info from a 1099 which she did not receive this year, since she didn’t make the 2020 contribution until February 2021. I found the IRA Contributions page under Deductions/Credits, and have input all of the information the same as in the guide above, with the exception that I input $6,000 where it asked “Enter the amount, if any, of your contributions to a traditional IRA for 2020 that were actually made from January 1, 2021 through May 17, 2021.” Despite doing this, the form 8606 which is generated as part of the Form 8606 in her federal tax return on the Summary page lists box 4, for contributions made in 2021, blank.
For the life of me I can’t figure out why that is happening, and am not sure if it would cause her a problem. Any help would be greatly appreciated!
Harry Sit says
The IRA Contributions page under Deductions/Credits is the right place. If her Form 8606 correctly lists her non-deductible contribution in line 1, read the instructions on line 3. When she answers No, she’s instructed to skip to line 14 and not complete lines 4-13.