Backdoor Roth in Vanguard question

[jeanpierremelville]

Bogleheads,

I did my backdoor Roth recently in March for tax year 2020. I've done this a few times in the past without any issues and am familiar with the logistics of it but I'm wondering if I did mine incorrectly this year.

- I contributed $6,000 into my trad IRA acct in Vanguard that had $0 in it on 3/26/2021.
- I then selected tax year 2020 for the contribution. I made sure the $6000 was in the Vanguard money market fund.
- On 3/29/2021 I selected the "convert to Roth IRA" link. Then I purchased some VSIAX with it.

The question is this:

When I look at my retirement summary on Vanguard, it has the contribution I made into the trad IRA on 3/26/21 under the section "Tax year 2020 contribution details" which is correct.
But the Roth conversion is listed under "Tax year 2021 contribution details" section.

I can only go back one more year in Vanguard and it looks like that's how it was done for 2019. I emailed Vanguard and even spoke to a rep but they were not helpful.

Is this correct? Is the non-deductible contribution made for the previous year always reported as the conversion in the next tax year? Can someone tell me why that is the case? I feel like I'm missing some simple point that will make me slap my head. Thanks.

JPM

[MrJedi]

Contribution and conversion are separate steps. Contributions are allowed for retroactive tax year as you've done, but conversions are always accounted for in the current tax/calendar year. This is a common confusion.

[nolesrule]

In 2021 details is the Roth amount showing under the column "Contributions" or "Rollover Contributions"?

[lazynovice]

Contribution and conversion are separate steps. Contributions are allowed for retroactive tax year as you've done, but conversions are always accounted for in the current tax/calendar year. This is a common confusion.

^^^^This. The additional time to contribute does not apply to the conversion.

[jeanpierremelville]

In 2021, it is showing up as rollover contributions under "contribution details".

JPM

[nolesrule]

In 2021, it is showing up as rollover contributions under "contribution details".

JPM

That means the money coming in was rolled over or converted. It doesn't count toward contributions limits for the year in question.

[BolderBoy]

Contribution and conversion are separate steps. Contributions are allowed for retroactive tax year as you've done, but conversions are always accounted for in the current tax/calendar year. This is a common confusion.

+1. This is the correct answer.

Sorry OP, I don't think you can undo this.

[MrJedi]

Contribution and conversion are separate steps. Contributions are allowed for retroactive tax year as you've done, but conversions are always accounted for in the current tax/calendar year. This is a common confusion.

+1. This is the correct answer.

Sorry OP, I don't think you can undo this.

Based on the details given so far, I don't see a reason to undo anything. It's just a technicality and you need to just report it correctly on form 8606 for both 2020 and 2021.

[BolderBoy]

Contribution and conversion are separate steps. Contributions are allowed for retroactive tax year as you've done, but conversions are always accounted for in the current tax/calendar year. This is a common confusion.

+1. This is the correct answer.

Sorry OP, I don't think you can undo this.

Based on the details given so far, I don't see a reason to undo anything. It's just a technicality and you need to just report it correctly on form 8606 for both 2020 and 2021.

His OP made it pretty clear he wanted both the contribution and the conversion to be credited in 2020. Beyond that you are right, just need proper reporting on both 8606s.

[retiredjg]

The contribution was for 2020 and is documented on the 2020 taxes.

The conversion happened in 2021 and is documented with the 2021 taxes.

So you can see there is no such thing as backdoor Roth for 2020, at least not in your case. Only the contribution is for 2020.

You might want to check your previous records and see if you have reported them correctly on your taxes.

[jeanpierremelville]

Retiredjg, Bolderboy,

I'm going to backtrack a little bit and explain how I've been doing the backdoor Roths.

For a few years, I've done the backdoor Roths by making the contributions in year X+1 and converting them a few days later but always selecting and reporting it for year X.

For example, I would do a non-deductible contribution to my trad IRA in Vanguard in 3/2019 and convert a few days later to the Roth but select and report for tax year 2018. My understanding was that this was allowed? Was I wrong?

So my specific question on this topic was that I made the contribution to my trad IRA and converted to the Roth a few days later in 3/2021. I want both reported for tax year 2020. When I selected the year of contribution for my trad IRA, I selected 2020. When I converted the Roth, it did not ask me for a tax year. Now that it's been explained to me, it seems that the conversions are only for the year in which are made.

I will have to look over my form 8606 from previous years. I tried to look at my prior years on Vanguard but it only lets me view back to 2020.

Thank you for your replies everyone.

JPM

[KingRiggs]

There is no limit to what you can CONVERT in a given tax year. You are only limited to what you can CONTRIBUTE in a given tax year.

You have done nothing wrong, it won't cost you any extra taxes or penalties as long as you fill out Form 8606 properly.

Do yourself a favor, though: it's a lot easier to wrap your head around making the CONTRIBUTION for the year and immediately CONVERTING it for the same year (instead of your "Year x+1" system). I save up my next year's contribution and contribute then convert in early January of each year. Much simpler to track mentally.

[retiredjg]

For a few years, I've done the backdoor Roths by making the contributions in year X+1 and converting them a few days later but always selecting and reporting it for year X.

What does "reporting it" mean?

Did you actually report the 2018 contribution and the 2019 conversion on your 2018 taxes? And so on for each year?

For example, I would do a non-deductible contribution to my trad IRA in Vanguard in 3/2019 and convert a few days later to the Roth but select and report for tax year 2018. My understanding was that this was allowed? Was I wrong?

If you have been doing what it seems you have been doing, yes... it was wrong.


I'm not sure how to fix what you have done. If you can show us each contribution (date, amount, what year it was for) and also all the Forms 8606, someone might be able to figure it out and figure out how to fix it.

[placeholder]

There's nothing wrong with the process (BTW there's no reason to wait until the next year) but you might have a problem with your tax forms so you need to get all of the form 8606 copies you have filed and tell us what was on each.

[nolesrule]

Retiredjg, Bolderboy,

I'm going to backtrack a little bit and explain how I've been doing the backdoor Roths.

For a few years, I've done the backdoor Roths by making the contributions in year X+1 and converting them a few days later but always selecting and reporting it for year X.

For example, I would do a non-deductible contribution to my trad IRA in Vanguard in 3/2019 and convert a few days later to the Roth but select and report for tax year 2018. My understanding was that this was allowed? Was I wrong?

So my specific question on this topic was that I made the contribution to my trad IRA and converted to the Roth a few days later in 3/2021. I want both reported for tax year 2020. When I selected the year of contribution for my trad IRA, I selected 2020. When I converted the Roth, it did not ask me for a tax year. Now that it's been explained to me, it seems that the conversions are only for the year in which are made.

I will have to look over my form 8606 from previous years. I tried to look at my prior years on Vanguard but it only lets me view back to 2020.

Thank you for your replies everyone.

JPM

You don't get to choose which year to report these things in.

Contributions to a non-deductible Traditional IRA are reported on Form 8606 for the tax year designated on the contribution regardless of the calendar year they happen in.

Conversions are reported on Form 8606 for the calendar year in which they occur. And there will be a 1099-R issued for the conversion.

[retiredjg]

jeanpierremelville, you are going to need to reconstruct each contribution and each conversion and compare it to the various 8606 forms. If you have indeed been doing what you said, every form is wrong since the first one. However, it is unclear if you paid taxes on the wrong amount or not.

It appears you reported the (making up dates here) 2019 conversion with your 2018 taxes even though there was no 1099 reporting a conversion. Then the 2020 conversion got reported on the 2019 taxes, but there was a 1099 reporting that.

What may cause you a problem is that (again, making up numbers) if you did a $6k conversion in 2020 and reported it on your 2019 taxes as $6k, but the 2019 1099 says you converted $5,500 instead.....your taxes may have been done incorrectly.

[jeanpierremelville]

https://drive.google.com/drive/folders/ ... sp=sharing

Bogleheads,

Please see the attached link above. It was the best I could do in terms of taking screenshots of my form 8606. I hope they are legible.
It contains 10 pages total (2 pages each for tax year 2015, 2016, 2017, 2018 and 2019).

Please note the sequence of pages are slightly out of order so pay attention to that please. I could not fix that.

Basically, I started this process because I read about the backdoor Roth prior to a tax season and thought, "Wow, I could do this for last year if I hurry up". Since then, I've been doing it this way which is not wrong as many of you point out but also does not help with efficiency and tracking.


Now, I'm pretty sure I have all the tax years where I did this (I may have to go back even further).

My accountant did the forms but now that I look at them, I'm not sure they were done correctly. For example, in 2015, 2016, 2017 the line 2 basis is zero but in 2018 and 2019 there is a basis. Also, in 2015, page 2 is left completely blank but after 2016, she starts filling them out.

I obviously did not understand the backdoor Roth completely. I now realize that the non-deductible contribution is separate and unrelated to the conversion to the Roth. They can happen in different times/ years as I have done.

As I mentioned, I've always done the 6000 or 5500 non-deductible contributions in March of April of the year following the tax year I am filing for and converted a few days after.

Now my question is, are my 8606 forms filled out correctly? Since the conversion is a separate process from the non-deductible contribution, if the contribution is reported correctly (in my case, always for the previous years) is that OK? If not, how can I correct these mistakes?

Thank you.

JPM

[retiredjg]

JPM, your link requires a reader to ask for access. I doubt that many will do that. If you cannot figure out a way to make it available without asking for permission, you could just report the numbers here. A hassle but do-able.

As I mentioned, I've always done the 6000 or 5500 non-deductible contributions in March of April of the year following the tax year I am filing for and converted a few days after.

Were the taxes already finished when you made your contribution and did the conversion each time?

[jeanpierremelville]

Got it. I fixed it.

Can you guys try this link below? If it doesn't work, I'll have to type in the numbers manually.

JPM

https://drive.google.com/drive/folders/ ... sp=sharing

[retiredjg]

The link works. It will take some time and brain power to figure out what has been done, so be patient.

Do you have any records of the dates these contributions were made?

Is there an answer to my question above?

[retiredjg]

I don't know what happened, but both links now required permission.

[jeanpierremelville]

I'm sorry guys. The open link was sharing other personal info about me so I had to close it.

I've tried postimage without success. I'll try to post the images again or I will manually enter the info by line.

JPM

[OldSport]

You are only allowed to contribute up to $6000 for any given year, but the conversion happens in the year the conversion takes place.

Assuming it was a non deductible trad IRA contribution and there was no additional trad IRA balance, the conversion should have no taxes. But the conversion is a taxable event in the year it takes place.

If you had previously been eligible to contribute directly to Roth, then you could have contributed to a prior year in the beginning of the current year, but trad to roth conversions are always taxable the year they occur, but many have no taxes, if the funds converted are nondeductible contributions with no other deductible trad IRA balances.

[jeanpierremelville]

https://postimg.cc/gallery/LHhGWHK

Hi guys,

Please try the link above. Hopefully everyone should be able to view it without any access questions.

I've attached pages 1 and 2 for my form 8606 for 2015, 2016, 2017, 2018 and 2019 (so total of 10 pages).

Retiredjg, I always notified my accountant about my backdoor Roth prior to the contribution and subsequent conversion. Also, regarding your other question, I don't have the exact dates for my contribution/ conversion (I can find them by going through my paper statements) but they were always in the March/ April of the year that I filed taxes.

For example, I would do my non-deductible contribution to my trad IRA in March/ APril (but before April 15) of 2019 for tax year 2018.
Same thing done in March/ April of 2018 for 2017.

Many years ago, I had a balance for about 15K in my trad IRA from an earlier job. I converted that, PAID the taxes on it and made sure the trad IRA had a 0 balance before I started doing this.

I hope this helps. Mostly, I hope the images load up so you guys can take a look.

Thank you.

JPM

[retiredjg]

JPM, this is what I think is happening.

From the Forms 8606, it appears to me that your tax person has been (more or less) doing the form correctly each year. But she was not doing what you thought she was doing. In other words, she was entering the 1099's for the right year even though you thought the right year would have been the previous year.

For example, she does not show a conversion for 2015 and that would be correct if you made a 2015 contribution in 2016 and converted it in 2016. The conversion of that first contribution would be on the 2016 Form.

And so on until we get to the last Form 8606 which shows a $6k contribution which was made for 2019. And it shows a conversion of $5,500 which you did in 2019 (but was actually the 2018 contribution). The conversion of the 2019 $6,000 will show up on the not yet done 2020 Form and that is correct since you did the conversion in 2020.

You are correct that a few of the early forms are a little wonky, but this is not unusual and it appears you have paid the right amount of tax each year. The wonky forms are 2016 and 2017 and if the IRS was concerned you would probably have heard from them in 2019 and/or 2020. They tend to send out these letters 2 years after filing. Of course, the workings at the IRS in 2020 are all messed up, so keep good records for awhile.

So back to your original question, the information you found at Vanguard is correct even though it is different from what you thought was going on. And I think your taxes are correct as well.


If you wish to double check, you might find the 1099's that report the $5502 and $5501 Roth conversions and see if they are shown on the right tax year forms. I feel sure they are because it is unlikely that your tax person would enter anything that is not supported by a 1099, but it would not hurt to check.