You actually can do this for an extra six months after your tax filing date, but you will have to refile your return. The first thing to determine is whether this post even applies to you. If your income is below a certain amount, you can just contribute directly to a Roth IRA. First, it is a MODIFIED Adjusted Gross Income (MAGI). That number is very similar to your Adjusted Gross Income (AGI). Bear in mind that starting in 2018, you can no longer do recharacterizations of Roth CONVERSIONS (not contributions).

1. They should both be a number very close to zero if the form is being completed correctly.
2. What happens if you LOSE money in between the contribution and conversion step?
3. Get rid of any SEP-IRA, SIMPLE IRA, traditional IRA, or rollover IRA money.
4. Your Roth IRA contributions will need to go through the “backdoor” many times as you build your portfolio.
5. The key is to check lines 15c and 18 on Form 8606.

The IRS clarified in early 2018 that no waiting period is required between the contribution and conversion steps of the Backdoor Roth IRA. It has essentially given its blessing on the whole process. Waiting just makes things more complicated on the 8606, as discussed in Pennies and the Backdoor Roth IRA. The conversion step may take place at any time. It can take place the next day or even the same day as the contribution.

Do I Need to Worry About the Step Transaction Doctrine?

The taxable amount of your Traditional IRA to Roth IRA conversion is being affected by the ‘pro rata rule’. This question is asked because Turbotax is trying to discover if your IRA contribution is deductible. There is an income limit on IRA contribution deductions if your income is above a certain amount. Just answer the question truthfully, yes or no to move on.

When to Do a Backdoor Roth IRA

If you’re really neurotic, and you have the downloaded version of Turbotax, you can double-check you did it right by going to Forms Mode (button in the upper left of the screen). Once there, you can click on your Form(s) 8606 to backdoor roth ira turbotax make sure you did it right. If Vanguard (or whoever) didn’t check that box, then they had better have left box 2a blank or put a $0 in it. In general, you’ll have a 2 in box 7 and the IRA box afterward should be checked too.

Who Should Own Taxable Accounts?

Be certain to enter your basis before entering any 1099-R. Follow the steps below in the order given, for the desired outcome. TurboTax can be a bit finicky though, and if you convert your Traditional IRA into a Roth IRA, properly inputting the change is an involved process. If you don’t do it right, your numbers will probably not look right, with things like penalty charges for excess contributions showing up when they shouldn’t. A backdoor Roth IRA is a conversion that allows high earners to open a Roth IRA despite IRS-imposed income limits. If your only Traditional IRA account had been the one that was subsequently converted to the Roth IRA, then everything would have worked as planned, with a non-taxable event on your return.

Is a Backdoor Roth Still Allowed?

As you can see, a Roth conversion of a non-deductible traditional IRA contribution without any gains is a taxable event; it’s just that the tax bill is zero for it. Done properly, there is NO tax on a Backdoor Roth IRA conversion. It really is just a little bit of hassle to do each year, although there may be some additional hassle the first year if you need to take care of another IRA first to avoid the pro-rata rule.

Note that all this serves to do is report basis for the next year. Since no conversion step was done during the calendar year 2020, you only have to fill out lines 1-3 and 14. The fix for this is going to vary by the individual, but the easiest fix is to simply convert the entire IRA to a Roth IRA now, so you end up getting all your post-tax money into that Roth IRA. Another possible fix is to figure out a way to separate your basis in that IRA, roll the tax-deferred money into a 401(k), and then convert the basis left behind in the IRA.

Now you will need to select an investment for the money in your Roth IRA. If you already have an investment in there, you can https://turbo-tax.org/ simply add $7,000 to it. Otherwise, you will need to select an investment in accordance with your written investing plan.

What if you MADE money in the account between contribution and conversion? This actually happens most of the time, so I wrote an entire post on it called Pennies and the Backdoor Roth IRA. Technically, any money earned between the contribution and conversion step is fully taxable at ordinary income tax rates in the year of the conversion. If it is less than 50 cents, you just ignore it.

So you only pay taxes once using the backdoor Roth IRA strategy. Under the law, a backdoor Roth individual retirement account is legally permissible and respected by the IRS, provided that tax law requirements are met. For one thing, Roth IRAs don’t have required minimum distributions (RMDs), which means that account balances can create tax-deferred growth for as long as the account holder is alive. You can take out as much or as little as you want, whenever you want, or you can leave it all for your heirs. A Form 1040 return with limited credits is one that’s filed using IRS Form 1040 only (with the exception of the specific covered situations described below). As mentioned above, in 2010, the rules changed.

This includes all contributions to traditional and Roth IRAs. Rollovers/transfers do not count toward the annual contribution limit. Note that you’ve got to do all of Part I plus Part II for this year because you did the conversion step, unlike last year (2020). I made a 2024 Roth IRA contribution of $7,000 on March 13, 2024, because I didn’t know about the whole MAGI limit thing when I made the contribution.

Okay, you’re now done with entering the conversion step into Turbotax. If you scroll down to the Retirement Plan and Social Security section you’ll see $6,000 ($12,000 if you did a Backdoor Roth IRA for your spouse too) next to the IRA, 401(k), Pension Plans (1099-R) line. If you’re doing your Backdoor Roth IRA “correctly” in the “normal” way, your basis at the end of the prior year should be $0. If yours isn’t for some reason, put in your basis (i.e., non-deductible money put into the traditional IRA but not converted out of the IRA). The tax preparer should NOT be filing Form 5439. If you did Steps 1-5 right, this form probably doesn’t belong in your tax return.