Problem with back door roth ira on taxact

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travellight
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Problem with back door roth ira on taxact

Post by travellight » Tue Oct 10, 2017 9:52 pm

I am having a hard time doing my taxes with taxact for my back door roth ira.

This is what it currently says:

"You have just completed a copy of Form 1099-R. You have total taxable pension and IRA income of $840 (not including RRB pensions and amounts reported as Wages on line 7 of Form 1040)."

Here is what happened: I contributed $6500 to Tira around 1/19/16 (I am over 50). About a week later, I converted the contribution to a roth ira. Unfortunately, I had made the conversion in kind and I think I had bought a Vanguard fund like Wellesley or Wellington. In the week that elapsed, the $6500 grew to $6521. I called Wells fargo and they advised me to transfer it back out of the roth ira into my regular checking account so that I would have a net amount of $6500 contributed to the roth ira. This generated a second 1099-R.

The first 1099-R is from my ira showing that I took a distribution of $6521.54 which was converted to a roth ira.
The second 1099-R is from my roth ira showing a nontaxable distribution of $21.54.

I entered both 1099s in taxact and it seems to be confusing things. Even if I had not entered the 1099 for the $21.54 backed out of the roth ira, the system felt that I had contributed too much (it said my max tax free amount was $5660 so I was being taxed on the amount above that.

Does anyone have tips on how to submit this properly? Thanks.

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celia
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Re: Problem with back door roth ira on taxact

Post by celia » Tue Oct 10, 2017 10:26 pm

We don't have enough information. Let's start with this:

0. Are you filing as Married Filing Jointly or as Single? If you are filing as MFJ, give all answers for both of you.

1. Were you 50 or older on 12/31/2016? Also, were you at least 59.5 on the date you withdraw the $21.54? Did you enter your correct birthday into the software near the beginning where you enter your name, address, SSN?

2. On each 1099-R for the IRAs, please give us the numbers on lines 1, 2a, 2b, 7, and the line 7 box (IRA/SEP/SIMPLE).

3. Can you give us all the numbers that appear on the Form 8606 that your software generated and the line number for each amount?

4. What is the number (if any) that ended up on line 32 of Form 1040?

There was no need to remove the $21.54. That part of the conversion would have been taxable, but it would only have been a few dollars. It appears you took a withdrawal.

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celia
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Re: Problem with back door roth ira on taxact

Post by celia » Tue Oct 10, 2017 11:15 pm

travellight wrote:
Tue Oct 10, 2017 9:52 pm
Here is what happened: I contributed $6500 to Tira around 1/19/16 (I am over 50). About a week later, I converted the contribution to a roth ira. Unfortunately, I had made the conversion in kind and I think I had bought a Vanguard fund like Wellesley or Wellington. In the week that elapsed, the $6500 grew to $6521. I called Wells fargo and they advised me to transfer it back out of the roth ira into my regular checking account so that I would have a net amount of $6500 contributed to the roth ira. This generated a second 1099-R.
There appears to be some confusion in terminology here. If you talk to the IRS or custodian and use the wrong terminology, they may do or answer something different than what you meant.

A CONTRIBUTION is new money going into an IRA (or other retirement plan). You are limited to contributing $5,500 a year or $6,500 if you are over age 50 at the end of the contribution year.
A CONVERSION is changing some money from a tax-deferred status to tax-free by moving it from a Traditional IRA to a Roth IRA. There is no dollar limit on how much can be converted each year.

From what you wrote, it appears you contributed $6,500 to a traditional IRA. Then you converted $6,521 to a Roth. This is fine. If you started with an empty traditional IRA and made a non-deductible contribution, only the growth on that contribution will be taxed for the year of conversion.

Then you took a $21.54 withdrawal from the Roth. Since the 1099-R says it is a nontaxable distribution, part of your previous contributions were being removed (which is the default for distributions until the cumulative withdrawals are more than all the cumulative contributions and conversions).

travellight
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Re: Problem with back door roth ira on taxact

Post by travellight » Wed Oct 11, 2017 1:11 am

celia wrote:
Tue Oct 10, 2017 11:15 pm
travellight wrote:
Tue Oct 10, 2017 9:52 pm
Here is what happened: I contributed $6500 to Tira around 1/19/16 (I am over 50). About a week later, I converted the contribution to a roth ira. Unfortunately, I had made the conversion in kind and I think I had bought a Vanguard fund like Wellesley or Wellington. In the week that elapsed, the $6500 grew to $6521. I called Wells fargo and they advised me to transfer it back out of the roth ira into my regular checking account so that I would have a net amount of $6500 contributed to the roth ira. This generated a second 1099-R.
There appears to be some confusion in terminology here. If you talk to the IRS or custodian and use the wrong terminology, they may do or answer something different than what you meant.

A CONTRIBUTION is new money going into an IRA (or other retirement plan). You are limited to contributing $5,500 a year or $6,500 if you are over age 50 at the end of the contribution year.
A CONVERSION is changing some money from a tax-deferred status to tax-free by moving it from a Traditional IRA to a Roth IRA. There is no dollar limit on how much can be converted each year.

From what you wrote, it appears you contributed $6,500 to a traditional IRA. Then you converted $6,521 to a Roth. This is fine. If you started with an empty traditional IRA and made a non-deductible contribution, only the growth on that contribution will be taxed for the year of conversion.

Then you took a $21.54 withdrawal from the Roth. Since the 1099-R says it is a nontaxable distribution, part of your previous contributions were being removed (which is the default for distributions until the cumulative withdrawals are more than all the cumulative contributions and conversions).
Thanks for the clarification, celia. Yes, I believe everything you have stated above is accurate. I should have said that I converted to a roth rather than contributed to a roth in my explanation above.

That is also not clear to me when I go through the steps in taxact. There is a step where there are two boxes and one box says I contributed to a traditional ira (which I check), and on the same page another box below says I contributed to a roth ira, and I don't know if I should check that or not (again, the confusion on the terminology for me).

mega317
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Re: Problem with back door roth ira on taxact

Post by mega317 » Wed Oct 11, 2017 1:19 am

From what you told us, you did not contribute to a Roth. You converted.

It might help you to fill out the forms yourself.

travellight
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Re: Problem with back door roth ira on taxact

Post by travellight » Wed Oct 11, 2017 1:28 am

celia wrote:
Tue Oct 10, 2017 10:26 pm
We don't have enough information. Let's start with this:

0. Are you filing as Married Filing Jointly or as Single? If you are filing as MFJ, give all answers for both of you.

1. Were you 50 or older on 12/31/2016? Also, were you at least 59.5 on the date you withdraw the $21.54? Did you enter your correct birthday into the software near the beginning where you enter your name, address, SSN?

2. On each 1099-R for the IRAs, please give us the numbers on lines 1, 2a, 2b, 7, and the line 7 box (IRA/SEP/SIMPLE).

3. Can you give us all the numbers that appear on the Form 8606 that your software generated and the line number for each amount?

4. What is the number (if any) that ended up on line 32 of Form 1040?

There was no need to remove the $21.54. That part of the conversion would have been taxable, but it would only have been a few dollars. It appears you took a withdrawal.
0. Are you filing as Married Filing Jointly or as Single? If you are filing as MFJ, give all answers for both of you.

I filed single, head of household.

1. Were you 50 or older on 12/31/2016? yes.

Also, were you at least 59.5 on the date you withdraw the $21.54? No.

Did you enter your correct birthday into the software near the beginning where you enter your name, address, SSN? Yes, I did.

2. On each 1099-R for the IRAs, please give us the numbers on lines 1, 2a, 2b, 7, and the line 7 box (IRA/SEP/SIMPLE).

1099 #1: for 6521.54 removed from tira to convert to roth ira 1099#2: for 21.54 removed from roth ira
line 1= 6521.54 line 1: 21.54
line 2a= 6521.54 line 2: 0
line 2b= checked line 2b: checked
line 7= 2 line 7- 8J
line 7 box= checked line 7 box- not checked.


3. Can you give us all the numbers that appear on the Form 8606 that your software generated and the line number for each amount?
I don't know how to view form 8606 on taxact.

4. What is the number (if any) that ended up on line 32 of Form 1040? I can't find how to see form 1040 but my summary report shows IRA distribution of $837 currently.

There was no need to remove the $21.54. That part of the conversion would have been taxable, but it would only have been a few dollars. It appears you took a withdrawal. Yes, I realize that now; silly of me in retrospect. I just wanted to fix it but the reporting at tax time is complicated.

Thanks...

travellight
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Re: Problem with back door roth ira on taxact

Post by travellight » Wed Oct 11, 2017 1:32 am

travellight wrote:
Wed Oct 11, 2017 1:28 am
celia wrote:
Tue Oct 10, 2017 10:26 pm
We don't have enough information. Let's start with this:

0. Are you filing as Married Filing Jointly or as Single? If you are filing as MFJ, give all answers for both of you.

1. Were you 50 or older on 12/31/2016? Also, were you at least 59.5 on the date you withdraw the $21.54? Did you enter your correct birthday into the software near the beginning where you enter your name, address, SSN?

2. On each 1099-R for the IRAs, please give us the numbers on lines 1, 2a, 2b, 7, and the line 7 box (IRA/SEP/SIMPLE).

3. Can you give us all the numbers that appear on the Form 8606 that your software generated and the line number for each amount?

4. What is the number (if any) that ended up on line 32 of Form 1040?

There was no need to remove the $21.54. That part of the conversion would have been taxable, but it would only have been a few dollars. It appears you took a withdrawal.
0. Are you filing as Married Filing Jointly or as Single? If you are filing as MFJ, give all answers for both of you.

I filed single, head of household.

1. Were you 50 or older on 12/31/2016? yes, I was.

Also, were you at least 59.5 on the date you withdraw the $21.54? No.

Did you enter your correct birthday into the software near the beginning where you enter your name, address, SSN? Yes, I did.

2. On each 1099-R for the IRAs, please give us the numbers on lines 1, 2a, 2b, 7, and the line 7 box (IRA/SEP/SIMPLE).

1099 #1: for 6521.54 removed from tira to convert to roth ira
line 1= 6521.54
line 2a= 6521.54
line 2b= checked
line 7= 2
line 7 box= checked

1099#2: for 21.54 removed from roth ira
line 1: 21.54
line 2: 0
line 2b: checked
line 7- 8J
line 7 box- not checked.

3. Can you give us all the numbers that appear on the Form 8606 that your software generated and the line number for each amount?
I don't know how to view form 8606 on taxact.

4. What is the number (if any) that ended up on line 32 of Form 1040?
I can't find how to see form 1040 but my summary report shows IRA distribution of $837 currently.

There was no need to remove the $21.54. That part of the conversion would have been taxable, but it would only have been a few dollars. It appears you took a withdrawal.
Yes, I realize that now; silly of me in retrospect. I just wanted to fix it but the reporting at tax time is complicated.

Thanks...

travellight
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Location: San Diego

Re: Problem with back door roth ira on taxact

Post by travellight » Wed Oct 11, 2017 1:33 am

travellight wrote:
Wed Oct 11, 2017 1:32 am
travellight wrote:
Wed Oct 11, 2017 1:28 am
celia wrote:
Tue Oct 10, 2017 10:26 pm
We don't have enough information. Let's start with this:

0. Are you filing as Married Filing Jointly or as Single? If you are filing as MFJ, give all answers for both of you.

1. Were you 50 or older on 12/31/2016? Also, were you at least 59.5 on the date you withdraw the $21.54? Did you enter your correct birthday into the software near the beginning where you enter your name, address, SSN?

2. On each 1099-R for the IRAs, please give us the numbers on lines 1, 2a, 2b, 7, and the line 7 box (IRA/SEP/SIMPLE).

3. Can you give us all the numbers that appear on the Form 8606 that your software generated and the line number for each amount?

4. What is the number (if any) that ended up on line 32 of Form 1040?

There was no need to remove the $21.54. That part of the conversion would have been taxable, but it would only have been a few dollars. It appears you took a withdrawal.
0. Are you filing as Married Filing Jointly or as Single? If you are filing as MFJ, give all answers for both of you.

I filed single, head of household.

1. Were you 50 or older on 12/31/2016? yes, I was.

Also, were you at least 59.5 on the date you withdraw the $21.54? No.

Did you enter your correct birthday into the software near the beginning where you enter your name, address, SSN? Yes, I did.

2. On each 1099-R for the IRAs, please give us the numbers on lines 1, 2a, 2b, 7, and the line 7 box (IRA/SEP/SIMPLE).

1099 #1: for 6521.54 removed from tira to convert to roth ira
line 1= 6521.54
line 2a= 6521.54
line 2b= checked
line 7= 2
line 7 box= checked

1099#2: for 21.54 removed from roth ira
line 1: 21.54
line 2: 0
line 2b: checked
line 7- 8J
line 7 box- not checked.

3. Can you give us all the numbers that appear on the Form 8606 that your software generated and the line number for each amount?
I don't know how to view form 8606 on taxact.

4. What is the number (if any) that ended up on line 32 of Form 1040?
I can't find how to see form 1040 but my summary report shows IRA distribution of $837 currently.

There was no need to remove the $21.54. That part of the conversion would have been taxable, but it would only have been a few dollars. It appears you took a withdrawal.
Yes, I realize that now; silly of me in retrospect. I just wanted to fix it but the reporting at tax time is complicated.

Thanks...

travellight
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Location: San Diego

Re: Problem with back door roth ira on taxact

Post by travellight » Wed Oct 11, 2017 1:36 am

Also, for this question below, should the answer be zero since I always move all my money to roth ira so my tira basis is zero at the end of each year, or should the answer be the amount in my roth ira 12/31/xx?

"Enter the total of all nondeductible contributions that were made to XXXXs traditional IRAs in all years prior to 2016 less any withdrawals or distributions of nondeductible contributions in those years."

travellight
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Re: Problem with back door roth ira on taxact

Post by travellight » Wed Oct 11, 2017 1:39 am

This question/step is also confusing:

"IRA Contributions - Traditional - Adjustment Entry

Enter any adjustment to MAGI for the nontaxable portion of your traditional IRA distributions or conversions. This entry should be the total of the nontaxable amounts on the taxpayer and spouse (if applicable) copies of Form 8606 line 13 or 17. As your return currently stands, that amount is $5,642. Enter this amount below."

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celia
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Re: Problem with back door roth ira on taxact

Post by celia » Wed Oct 11, 2017 1:35 pm

Print out your tax return (on paper or to a .pdf file) and write "draft" on each page so you don't get it confused with your real return. Note that some forms are double sided/2 pages. Then you can give us the rest of the numbers for Form 8606 and line 32 on the front of the Form 1040.

Don't change anything yet in your software, because then the printouts won't match the data you've entered.
travellight wrote:
Wed Oct 11, 2017 1:36 am
Also, for this question below, should the answer be zero since I always move all my money to roth ira so my tira basis is zero at the end of each year, or should the answer be the amount in my roth ira 12/31/xx?

"Enter the total of all nondeductible contributions that were made to XXXXs traditional IRAs in all years prior to 2016 less any withdrawals or distributions of nondeductible contributions in those years."
The tIRA basis is the amount of non-deductible (post-tax) dollars left in your tIRA. Yes, it should be zero but to make sure, look at the Form 8606, line 14, from 2015 if you printed out that return for your records.

Your 1099-Rs look good. When you withdrew $21.54 from the Roth, the codes in box 7 (as seen on the backside of form 1099-R) show that you were removing an excess contribution (8) or taking an early distribution-under 59.5 (J). You did not contribute to a Roth, so there was no Excess contribution. What you said on the phone probably added the code 8 to the box, but the amount is so small we won't worry about it at this time. The tax, if any, due to the early distribution will be under $10, maybe even 0 when we get done.

So print out your return and give us the Form 8606 numbers and line 32 on Form 1040.

travellight
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Re: Problem with back door roth ira on taxact

Post by travellight » Wed Oct 11, 2017 8:00 pm

celia wrote:
Wed Oct 11, 2017 1:35 pm
Print out your tax return (on paper or to a .pdf file) and write "draft" on each page so you don't get it confused with your real return. Note that some forms are double sided/2 pages. Then you can give us the rest of the numbers for Form 8606 and line 32 on the front of the Form 1040.

Don't change anything yet in your software, because then the printouts won't match the data you've entered.
travellight wrote:
Wed Oct 11, 2017 1:36 am
Also, for this question below, should the answer be zero since I always move all my money to roth ira so my tira basis is zero at the end of each year, or should the answer be the amount in my roth ira 12/31/xx?

"Enter the total of all nondeductible contributions that were made to XXXXs traditional IRAs in all years prior to 2016 less any withdrawals or distributions of nondeductible contributions in those years."
The tIRA basis is the amount of non-deductible (post-tax) dollars left in your tIRA. Yes, it should be zero but to make sure, look at the Form 8606, line 14, from 2015 if you printed out that return for your records.

Your 1099-Rs look good. When you withdrew $21.54 from the Roth, the codes in box 7 (as seen on the backside of form 1099-R) show that you were removing an excess contribution (8) or taking an early distribution-under 59.5 (J). You did not contribute to a Roth, so there was no Excess contribution. What you said on the phone probably added the code 8 to the box, but the amount is so small we won't worry about it at this time. The tax, if any, due to the early distribution will be under $10, maybe even 0 when we get done.

So print out your return and give us the Form 8606 numbers and line 32 on Form 1040.
The ira deduction, line 14 on the 1040, was zero for 2015. Line 14 on form 8606 did not show zero; it shows the total amount of basis I have put into the roth ira (not including the gains).

I am trying to enter this in taxact and I don't know how to print out form 8606 on taxact without filing and paying already. It looks like they are imposing a tax of about $840 on a contribution of $6500.

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celia
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Re: Problem with back door roth ira on taxact

Post by celia » Wed Oct 11, 2017 8:39 pm

Here are some instructions on how to enter the Backdoor Roth IRA information using TaxAct:
https://thefinancebuff.com/how-to-backd ... axact.html

The taxable amount of the conversion ends up on line 15 of Form 8606, and is then carried over to line 15b on the Form 1040. But line 15b can include other numbers too, such as traditional IRA distributions.

Let's see if the above instructions clean it up to what you are expecting. Take your time and follow the instructions carefully.

travellight
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Re: Problem with back door roth ira on taxact

Post by travellight » Wed Oct 11, 2017 9:49 pm

celia wrote:
Tue Oct 10, 2017 10:26 pm
We don't have enough information. Let's start with this:

0. Are you filing as Married Filing Jointly or as Single? If you are filing as MFJ, give all answers for both of you.

1. Were you 50 or older on 12/31/2016? Also, were you at least 59.5 on the date you withdraw the $21.54? Did you enter your correct birthday into the software near the beginning where you enter your name, address, SSN?

2. On each 1099-R for the IRAs, please give us the numbers on lines 1, 2a, 2b, 7, and the line 7 box (IRA/SEP/SIMPLE).

3. Can you give us all the numbers that appear on the Form 8606 that your software generated and the line number for each amount?

4. What is the number (if any) that ended up on line 32 of Form 1040?

There was no need to remove the $21.54. That part of the conversion would have been taxable, but it would only have been a few dollars. It appears you took a withdrawal.
I was able to figure out how to find form 8606 as it stands before I file. Here are the form 8606 numbers:

line 1: $6500
line 2: 90,788
line 3: 97,288
line 4: empty or zero
line 5: 97,288
lines 6-12: blank or zero
line 13: 5678
line 14: 91610
line 15: zero
line 16: 6522
line 17: 5678
line 18: 844
line 19-24: blank
line 25: zero

Line 32 on the 1040 is blank.

travellight
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Location: San Diego

Re: Problem with back door roth ira on taxact

Post by travellight » Wed Oct 11, 2017 9:51 pm

celia wrote:
Wed Oct 11, 2017 8:39 pm
Here are some instructions on how to enter the Backdoor Roth IRA information using TaxAct:
https://thefinancebuff.com/how-to-backd ... axact.html

The taxable amount of the conversion ends up on line 15 of Form 8606, and is then carried over to line 15b on the Form 1040. But line 15b can include other numbers too, such as traditional IRA distributions.

Let's see if the above instructions clean it up to what you are expecting. Take your time and follow the instructions carefully.
I had been using this many times before I posted this thread. It isn't as clear to me as I had hoped. I think it wasn't "dummied" enough. I will have to take notes for next year once I figure this out to try to dumb it down to a very simplistic level for me to retrace the steps.

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celia
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Re: Problem with back door roth ira on taxact

Post by celia » Wed Oct 11, 2017 11:53 pm

Thanks a lot. Now I see what went wrong.

When you answered "Enter the total of all nondeductible contributions that were made to XXXXs traditional IRAs in all years prior to 2016 less any withdrawals or distributions of nondeductible contributions in those years.", you should have answered 0, instead of 90,788.

This is asking for the amount of the basis remaining from the previous year. But you already used it all up, didn't you, since line 14 was 0 for 2015. (Please check.) Correct??? When you had previous conversions, you were doing withdrawals or distributions of nondeductible contributions from traditional IRAs. So when you get to this part of the questions, it is asking what nondeductible contributions you made in the tax year (line 1), then how much of nondeductible contributions you have left in your tIRAs from the previous year (line 2). This is what you want to make a note of.

Then when it asked about conversions, you should have answered that you converted $6521 to Roth. That was the amount of the money that went from the tIRA to the ROTH in 2016. (This is where you appear to confuse contributions and conversion. A contribution is new money going into a retirement account, whereas a conversion is money going between tax-deferred and Roth.)

When you are done, Form 8606 should look like:
1. 6500 <- basis contributed in the tax year
2. 0 <- basis carried over from previous year
3. 6500
4. 0
5. 6500
6. 0
7. 0
8. 6521 <- amount converted
9. 6521
10. .9967 <- a decimal number (99.67% of your conversion will be tax-free)
11. 6500
12. 0
13. 6500
14. 0 <- remaining basis to carry over to 2017
15. 0

16. 6521
17. 6500
18. 21 <-amount to be taxed in 2016, carries over to line 15b on Form 1040.

travellight
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Re: Problem with back door roth ira on taxact

Post by travellight » Thu Oct 12, 2017 8:26 am

celia wrote:
Wed Oct 11, 2017 11:53 pm
Thanks a lot. Now I see what went wrong.

When you answered "Enter the total of all nondeductible contributions that were made to XXXXs traditional IRAs in all years prior to 2016 less any withdrawals or distributions of nondeductible contributions in those years.", you should have answered 0, instead of 90,788.

This is asking for the amount of the basis remaining from the previous year. But you already used it all up, didn't you, since line 14 was 0 for 2015. (Please check.) Correct??? When you had previous conversions, you were doing withdrawals or distributions of nondeductible contributions from traditional IRAs. So when you get to this part of the questions, it is asking what nondeductible contributions you made in the tax year (line 1), then how much of nondeductible contributions you have left in your tIRAs from the previous year (line 2). This is what you want to make a note of.

Then when it asked about conversions, you should have answered that you converted $6521 to Roth. That was the amount of the money that went from the tIRA to the ROTH in 2016. (This is where you appear to confuse contributions and conversion. A contribution is new money going into a retirement account, whereas a conversion is money going between tax-deferred and Roth.)

When you are done, Form 8606 should look like:
1. 6500 <- basis contributed in the tax year
2. 0 <- basis carried over from previous year
3. 6500
4. 0
5. 6500
6. 0
7. 0
8. 6521 <- amount converted
9. 6521
10. .9967 <- a decimal number (99.67% of your conversion will be tax-free)
11. 6500
12. 0
13. 6500
14. 0 <- remaining basis to carry over to 2017
15. 0

16. 6521
17. 6500
18. 21 <-amount to be taxed in 2016, carries over to line 15b on Form 1040.
Thanks Celia! I think I have it mostly okay now. For some reason, lines 8-12 are blank but lines 16-18 are just as you have outlined and the net result is satisfactory: I converted $6500 to roth ira and I am only being taxed on the $21 excess. I guess there are two forms or reasons to get taxed: 1) early distribution, and 2) excess contribution. I transferred out the excess contribution right away (as noted in the second 1099r) but I am probably still paying a very minor price for the "early distribution". These results are with putting zero for end of year values in tira, contributing $6500 to tira, converting $6521 to roth ira, and then removing $22 from roth ira.

The only remaining question I have is, line 24 is blank which should show my running basis in my roth ira. Isn't this important for tracking?
FWIW, I reviewed the tax return for 2014 which had been filed by my accountant and he appeared to have put in the basis contributions for the years prior to 2014 as 69,500 (line 2) and the amount he entered for 2014 was 76,000 (line 3), so it appears he was using the numbers for basis whereas I was putting in the total value amount in my roth ira. The way it is worded in taxact in the instructions, it would seem like one should input basis for the prior year and net value for the current year but since it says in the traditional ira, it does make sense it should be zero. I was interpreting it as amounts in all iras so I was inputting my roth ira value amounts and it appears my prior accountant did that as well (except he was inputting basis and not end of year value), but it seems that was incorrect? How does one track basis then in roth ira or does it matter?

Thanks again for all your help!

mega317
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Re: Problem with back door roth ira on taxact

Post by mega317 » Thu Oct 12, 2017 11:06 am

travellight wrote:
Thu Oct 12, 2017 8:26 am
For some reason, lines 8-12 are blank but lines 16-18 are just as you have outlined and the net result is satisfactory:
I'm following along and finding this thread quite helpful. I just wanted to say that my old 8606s done with Turbotax are the same way. Interesting.

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celia
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Re: Problem with back door roth ira on taxact

Post by celia » Thu Oct 12, 2017 1:18 pm

travellight wrote:
Thu Oct 12, 2017 8:26 am
Thanks Celia! I think I have it mostly okay now. For some reason, lines 8-12 are blank but lines 16-18 are just as you have outlined and the net result is satisfactory: I converted $6500 to roth ira and I am only being taxed on the $21 excess.
I did my calculations manually, using pencil and paper, so it looks like we are both correct. The important thing is to have 0 on line 14, as that will carry over to next year's Form 8606, line 2 and line 18 which carries over to line 15b of the 1040.
The only remaining question I have is, line 24 is blank which should show my running basis in my roth ira. Isn't this important for tracking?
FWIW, I reviewed the tax return for 2014 which had been filed by my accountant and he appeared to have put in the basis contributions for the years prior to 2014 as 69,500 (line 2) and the amount he entered for 2014 was 76,000 (line 3), so it appears he was using the numbers for basis whereas I was putting in the total value amount in my roth ira.
Part III is filled out only when you take a distribution from from a Roth and it is unqualified. A qualified distribution is when the Roth has been open 5 years AND one of the following is true:
* you are over 59.5
* you are using the $21 towards a first-time house purchase :D
* you are disabled
* you have died

Since I don't think any of these things happened before you withdrew the $21 this year, for 2017, all three parts of the 8606 will be filled out. Note that line 22 is the cumulative total of all your direct CONTRIBUTIONS and line 24 is the cumulative total of all your CONVERSIONS. Once you are 59.5 and you have had a Roth for 5 years, this section will be ignored. But if each tax preparer kept entering in all your CONTRIBUTIONS and CONVERSIONS each year, this would be useful for unqualified distributions.

Next year, Part III should show:
19. 21 or 22?
20. 0
21. 21
22. (a big number?)
23. 0 (subtract the big number from 21, but don't go negative)
24. (a different big number?)
25. --

If line 23 is 0, then you stop. No tax is due since you can always withdraw the contributions tax-free. The early withdrawal penalty on 0 is also 0. If you have never made direct contributions to a Roth, then $21 will be taxed and the penalty will be $2. :D

travellight
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Re: Problem with back door roth ira on taxact

Post by travellight » Thu Oct 12, 2017 7:02 pm

Thanks Celia, you are an angel!!! I really appreciate your help in this process.

travellight
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Location: San Diego

Re: Problem with back door roth ira on taxact

Post by travellight » Thu Oct 12, 2017 7:13 pm

mega317 wrote:
Thu Oct 12, 2017 11:06 am
travellight wrote:
Thu Oct 12, 2017 8:26 am
For some reason, lines 8-12 are blank but lines 16-18 are just as you have outlined and the net result is satisfactory:
I'm following along and finding this thread quite helpful. I just wanted to say that my old 8606s done with Turbotax are the same way. Interesting.
Yes, I tried all 3 of the big programs (Taxact, turbotax, and H&R block) and had problems with each of them. I decided to commit to one and work through it.

crit
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Re: Problem with back door roth ira on taxact

Post by crit » Thu Oct 12, 2017 7:17 pm

I had problems initially with TurboTax too. When I erased the previous forms and started over by reporting the contribution first, and then the 1099 conversion later, it filled in the 8606 correctly.

But it was key to have worked through the 8606 on paper first, to see what TT did wrong. I knew I was only supposed to pay tax on the gains, but it came up telling me tax on some $900 or so extra, the first time, and the 8606 was wrong.

travellight
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Location: San Diego

Re: Problem with back door roth ira on taxact

Post by travellight » Fri Oct 13, 2017 7:50 am

crit wrote:
Thu Oct 12, 2017 7:17 pm
I had problems initially with TurboTax too. When I erased the previous forms and started over by reporting the contribution first, and then the 1099 conversion later, it filled in the 8606 correctly.

But it was key to have worked through the 8606 on paper first, to see what TT did wrong. I knew I was only supposed to pay tax on the gains, but it came up telling me tax on some $900 or so extra, the first time, and the 8606 was wrong.
yes, it seems the programs should be more straightforward than this. I had read that in my research so I did the contribution first, then the 1099s... maybe you had posted that in the past.

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Re: Problem with back door roth ira on taxact

Post by retiredjg » Sat Oct 14, 2017 10:51 am

travellight wrote:
Thu Oct 12, 2017 8:26 am
Thanks Celia! I think I have it mostly okay now. For some reason, lines 8-12 are blank but lines 16-18 are just as you have outlined and the net result is satisfactory....
Several of the tax software programs produce no entries on lines 6 through 12. This is alarming at first, but OK. You get to the same place in the end. We have seen it many times.

The software goes through a different procedure than reading the form and doing it by pencil. The software uses a worksheet in Publication 590 B and the worksheet says to skip those lines. But your taxable amount and Line 14 end up being the same and that is all that matters. :happy

travellight
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Location: San Diego

Re: Problem with back door roth ira on taxact

Post by travellight » Sat Oct 14, 2017 3:34 pm

retiredjg wrote:
Sat Oct 14, 2017 10:51 am
travellight wrote:
Thu Oct 12, 2017 8:26 am
Thanks Celia! I think I have it mostly okay now. For some reason, lines 8-12 are blank but lines 16-18 are just as you have outlined and the net result is satisfactory....
Several of the tax software programs produce no entries on lines 6 through 12. This is alarming at first, but OK. You get to the same place in the end. We have seen it many times.

The software goes through a different procedure than reading the form and doing it by pencil. The software uses a worksheet in Publication 590 B and the worksheet says to skip those lines. But your taxable amount and Line 14 end up being the same and that is all that matters. :happy
Thanks retiredjg!

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