Turbo tax Form 8606 for Backdoor Roth

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svtt
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Joined: Sun May 01, 2016 2:11 pm

Turbo tax Form 8606 for Backdoor Roth

Post by svtt » Tue Jun 23, 2020 7:20 pm

Hi,

I need some input regarding form 8606 that was filled out by Turbo tax. It looks nothing like how it is shown in the Bogleheads wiki example.
Line no 1, 3 and 14 all have $6000. No other lines have any value in them. Is that right for our situation below?

I contributed $6000 into a Traditional IRA(Non deductible) in March 2020 for 2019 and later converted to a Roth IRA(Backdoor)as soon as it was posted in the account. My husband contributed $6000 in 2019 and converted to Roth IRA in March 2020. But his balance was $6138.85 since it earned some interest.

I don't know how to fix this issue. Can we manually fill out those forms and remove the ones generated by Turbotax?

Thanks.

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FiveK
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Re: Turbo tax Form 86806 for Backdoor Roth

Post by FiveK » Tue Jun 23, 2020 7:37 pm

TurboTax is correct.

It is using the method described on p. 14 of Publication 590B (https://www.irs.gov/pub/irs-pdf/p590b.pdf) under "Reporting your nontaxable distribution on Form 8606."

See also the Form8606 tab in the personal finance toolbox spreadsheet, which shows exactly what you describe.

ETA: Katietsu described it better. TT will skip a bunch of lines on form 8606 by using the 590B approach when there is a distribution, but in this case "no distribution = a very sparse 8606."
Last edited by FiveK on Tue Jun 23, 2020 8:09 pm, edited 1 time in total.

Katietsu
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Re: Turbo tax Form 8606 for Backdoor Roth

Post by Katietsu » Tue Jun 23, 2020 7:56 pm

The conversion happened in 2020. So it will be shown on the 2020 tax return that you prepare in 2021. You will get a 1099-R for it next year. You are only reporting the contribution on your 2019 return. Is this the part confusing you? You may be looking at an example where the contribution was for tax year 2019 and the conversion occurred in 2019.

Topic Author
svtt
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Joined: Sun May 01, 2016 2:11 pm

Re: Turbo tax Form 8606 for Backdoor Roth

Post by svtt » Tue Jun 23, 2020 8:20 pm

Thank you Katietsu & FiveK

My confusion is the basis. I thought it should be 0 instead of 6000. But I guess after I report the conversion next year, it will become 0. Is that right?
Do I have to be worried about keeping track of the basis of my Traditional IRA if the balance is 0 always?

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FiveK
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Re: Turbo tax Form 8606 for Backdoor Roth

Post by FiveK » Tue Jun 23, 2020 8:25 pm

svtt wrote:
Tue Jun 23, 2020 8:20 pm
My confusion is the basis. I thought it should be 0 instead of 6000. But I guess after I report the conversion next year, it will become 0. Is that right?
Yes, if you convert it all.
Do I have to be worried about keeping track of the basis of my Traditional IRA if the balance is 0 always?
No.

You should however keep track of what has gone into your Roth IRA (contributions vs. untaxed conversions vs. taxed conversions) in case you need to withdraw from the Roth and prove that the withdrawal is not subject to tax or penalty.

Topic Author
svtt
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Re: Turbo tax Form 8606 for Backdoor Roth

Post by svtt » Wed Jun 24, 2020 10:56 am

FiveK wrote:
Tue Jun 23, 2020 8:25 pm
svtt wrote:
Tue Jun 23, 2020 8:20 pm
My confusion is the basis. I thought it should be 0 instead of 6000. But I guess after I report the conversion next year, it will become 0. Is that right?
Yes, if you convert it all.
Do I have to be worried about keeping track of the basis of my Traditional IRA if the balance is 0 always?
No.

You should however keep track of what has gone into your Roth IRA (contributions vs. untaxed conversions vs. taxed conversions) in case you need to withdraw from the Roth and prove that the withdrawal is not subject to tax or penalty.
Thank you!

webbow
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Re: Turbo tax Form 8606 for Backdoor Roth

Post by webbow » Sun Jun 28, 2020 11:38 pm

I have the same question.
Both my wife and I contributed the max $6k to our Roth IRA's in 2019, dumped all $6K in each in January 2019.
While doing our 2019 taxes in March 2020 I found out that my joint filing married income is over the Roth IRA contribution limit for 2019.
In March 2020 I transferred the 2019 $6k contribution plus the gains (me $968, wife at $2034) into a newly created traditional IRA (wife & I never had any other IRA then the Roth prior) and then immediately transferred it back into the Roth IRA.
Does this qualify for a back-door conversion?
Did I do this correctly to avoid penalties or taxes?
I am completing taxes in turbo tax and it seems funky to me answering all their traditional and Roth IRA questions.
Thanks in advance.

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FiveK
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Re: Turbo tax Form 8606 for Backdoor Roth

Post by FiveK » Mon Jun 29, 2020 1:53 am

webbow wrote:
Sun Jun 28, 2020 11:38 pm
In March 2020 I transferred the 2019 $6k contribution plus the gains (me $968, wife at $2034) into a newly created traditional IRA (wife & I never had any other IRA then the Roth prior) and then immediately transferred it back into the Roth IRA.
The words the IRS uses in this discussion mean very specific things. Can you be more specific about "I transferred"? E.g., did you and your wife each ask your broker to recharacterize your individual contributions? Or did the two of you do something else?

webbow
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Re: Turbo tax Form 8606 for Backdoor Roth

Post by webbow » Mon Jun 29, 2020 11:56 am

Yes we re-characterized the 2019 Roth contribution plus gain into a non-deductible traditional IRA. Then we converted the traditional back to a Roth...

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FiveK
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Re: Turbo tax Form 8606 for Backdoor Roth

Post by FiveK » Mon Jun 29, 2020 12:58 pm

webbow wrote:
Mon Jun 29, 2020 11:56 am
Yes we re-characterized the 2019 Roth contribution plus gain into a non-deductible traditional IRA. Then we converted the traditional back to a Roth...
Then you should be fine. The Form 8606 that you each file should have the amount of gain as taxable income. See the Form 8606 instructions about adding a note to your return explaining the recharacterizations. Backdoor Roth - Bogleheads may be helpful.

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