- How To Report Backdoor Roth In TurboTax
- How To Report Backdoor Roth In TaxACT.
- How to Report Backdoor Roth In FreeTaxUSA
If you did a Backdoor Roth, which involves making a non-deductible contribution to a Traditional IRA and then converting from the Traditional IRA to a Roth IRA, you need to report both the contribution and the conversion in the tax software. For more information on Backdoor Roth, please read Backdoor Roth: A Complete How-To and Make Backdoor Roth Easy On Your Tax Return.
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 in year X or between January and April of the following year. You also report your converting to Roth *during* year X, whether the money was contributed 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 during the same year. 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.
H&R Block Software
The screenshots below are taken from H&R Block Deluxe desktop software. If you use H&R Block Online, the screens may be similar. In general you are better off with buying software installed on your computer, not the online service. See Tax Software: Buy Download Or CD, Not Online Service.
Here’s the scenario used in the example:
You contributed $5,500 to a traditional IRA in 2018 for 2018. Your income is too high to claim a deduction for the contribution. By the time you converted it to Roth IRA, also in 2018, the value grew to $5,530. 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 H&R Block software shows:
We will compare the results after we enter the backdoor Roth.
Convert Traditional IRA to Roth
Income comes before deductions on the tax form. Tax software also organizes this way. Even though you contributed before you converted, the software makes you enter the income first.
When you convert the Traditional IRA to Roth, you receive a 1099-R for that year. Complete this section only if you converted *during* the year for which you are doing the tax return. If you only contributed for the year in question but didn’t convert until the following year, skip all the way to the next section heading “Non-Deductible Contribution to Traditional IRA.”
In this example, we assume by the time you converted, the money in the Traditional IRA had grown from $5,500 to $5,530.
Click on Federal -> Income. Scroll down and find IRA and Pension Income (Form 1099-R). Click on Go To.
Click on Import 1099-R if you’d like. I show manual entries with Add 1099-R here.
Just a regular 1099-R.
Enter the 1099-R exactly as you received. Pay attention to the code in Box 7 and the checkboxes. My 1099-R had Box 2b checked, code 2 in Box 7.
My 1099-R had the IRA/SEP/SIMPLE box checked.
Did not inherit.
This is a very important question. Read carefully. You converted, not rolled over.
Yes, you converted.
You are done with one 1099-R. Repeat the above if you have another 1099-R. Click on Finished when you are done with all the 1099-Rs.
A few more questions.
Answer yes if you contributed for the year.
After entering the Roth conversion, if you see your taxes go up a lot, don’t panic. In our test case we turned a refund of $941 into owing $995. This is normal. You haven’t entered your non-deductible contribution yet. It will come back down when you do.
Non-Deductible Contribution to Traditional IRA
Now we enter the non-deductible contribution to the Traditional IRA *for* the year in question. Complete this part whether you contributed in the same year or you did it or are planning to do it in the following year before April 15. If your contribution during the year in question was for the previous year, make sure you entered it on your previous tax return. If not, fix your previous return first.
Click on Federal -> Adjustments. Find IRA Contributions. Click on Go To.
Answer ‘Yes’ if you contributed to an IRA for the year in question.
If you contributed to Traditional IRA, check the Traditional IRA box. If you originally contributed to Roth IRA and then you recharacterized the contributions as traditional contributions, check the Roth IRA boxes here and then answer yes when it asks you whether you recharacterized.
No deduction due to income. Contribute anyway.
Enter your contribution amount.
This is important. Answer ‘no’ to recharacterization. You converted, not recharacterized. See the difference in Traditional and Roth IRA: Recharacterize vs Convert.
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.
Some follow-up questions.
This is another important question. Read carefully. If you are doing it the easy way, as in our example, answer “Yes” — you converted all. If you are doing it the hard way in offset years — contributing for year X in the following year and converting during the following year — answer “No” and you will see some more questions.
Please, please, please do yourself a big favor and do it the easy way. See Make Backdoor Roth Easy On Your Tax Return.
Just a note about Form 8606. Nothing to do here.
A summary of your contributions. 0 in Traditional IRA deduction means it’s non-deductible. Repeat for your spouse if both of you did backdoor Roth.
We are done for entering the non-deductible contribution to the Traditional IRA. Now the running meter for your taxes should go back down. It was a refund of $941 when we first started. Now it’s a refund of $930 due to the tax on the extra $30 earned before the Roth conversion.
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 are taxed on the backdoor Roth.
Click on Forms on the top and open Form 1040 and Schedules 1-6. Click on Hide Mini WS. Scroll down to line 4a.
It shows $5,530 in Roth conversion, $28 of which is taxable. The taxable income came out to $28 not $30 due to some rounding in the calculation. If you are married filing jointly and both of you did backdoor Roth, the amounts 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 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.
If you find this article helpful and you would like to contribute something to the tip jar, I thank you for your generosity.
If you followed the steps and you are not getting the expected results, here are a few things to check.
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. You can delete them and start over.
Click on Forms and then delete IRA Contributions Worksheet, 1099-R Worksheet and Form 8606. Then start over by following the steps here.
W-2 Box 13
Make sure the Retirement plan box in Box 13 of the W-2 you entered into the software matches your actual W-2. If you are married and both of you have a W-2, make sure your entries for both W-2’s match the actual forms you received.
When you are not covered by a retirement plan at work, such as a 401k or 403b plan, your Traditional IRA contribution may be deductible, which also makes your Roth conversion taxable.
Self vs Spouse
If you are married, make sure you don’t have the 1099-R and IRA contribution mixed up between yourself and your spouse. If you inadvertently entered two 1099-Rs issued to you instead of one for you and one for your spouse, the second 1099-R to you will not match up with a Traditional IRA contribution made by your spouse. 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.
Say No To Management Fees
If you are paying an advisor a percentage of your assets, you are paying 5-10x too much. Learn how to find an independent advisor, pay for advice, and only the advice.