Mega Backdoor Roth: Definition & How It Works

how to file backdoor roth ira in turbotax

Page 1 of Forms 1040 or 1040-SR (or Forms 1040A, 1040-NR, or 1040-T) filed for each year you made a nondeductible contribution to a traditional IRA. This limit doesn’t apply to employer contributions to a SEP or SIMPLE IRA. Keep track of your basis to figure the nontaxable part of your future distributions.. For purposes of Form 8606, a traditional IRA is an individual retirement account or an individual retirement annuity other than a SEP, SIMPLE, or Roth IRA.

How do I fill out IRS form 8606 for backdoor Roth?

  1. Line 1: Enter the nondeductible contribution you made to a traditional IRA in 2020.
  2. Line 2: Enter your total basis in Traditional IRAs.
  3. Line 3: Add lines 1 & 2 so you would enter $6,000 (or whatever amount you used for your nondeductible contribution).

The step-by-step instructions for Part l on the form will help the individual compute the taxable portion of the distribution. Tom won’t end up owing any taxes on his Backdoor Roth IRA, and his correct reporting of the contribution and conversion will avoid running afoul of the IRS. However, tax forms and reporting can be a daunting challenge. If stressors like tax law changes, new forms and confusion around the whole process keep you from sleeping soundly, reach out to a Merriman advisor to discuss whether a backdoor Roth IRA makes sense for you. You might even have other options available for tax-advantaged savings that you haven’t considered. Check out Mega Backdoor Roth Explained to see how you might be able to do a backdoor Roth in your employer 401 plan. We love navigating complex issues like these and giving guidance to elevate your finances.

Forgetting Form 8606

Option B is probably the best, assuming you’re in a high marginal tax bracket now and plan to be in a lower bracket later. A. To convert all the pre-tax assets to Roth but in this case I have to pay the taxes based on my Marginal Tax Rate. Both conversions took place in 2018, and there’s nothing wrong with that. As long as you assigned the contributions to the correct years (one $5,500 sum in 2017 and another in 2018), you’re fine. This is an excellent overview which really breaks it down to the granular level. 2018 is the first year I am over the Roth IRA income limit so I was pretty hesitant to attempt the backdoor conversion. Now I’m confident I can pull it off correctly.

Had pretty terrible customer service experiences with Vanguard recently after using them for years. Was trying to roll a “Rollover IRA” with vanguard to an employer 401K at Empower to clean up SEP accounts and enable backdoor in 2020… they were extremely unhelpful and it cost me the ability to do a backdoor in 2020. Additionally, any time you call them now its a minimum 30 min wait to talk to someone who isn’t particularly helpful. If you want to be invested over the time it takes to accumulate $6,000 , you can invest in a taxable brokerage account. With no other available space as far as I can see, you’ll need to invest in taxable, anyway.

Fixing Backdoor Roth IRA Errors

I would guess you’ve been making non-deductible contributions, as you’re not allowed to take that deduction due to your salary being well over the limit, but you would want to doublecheck your 1040 for those years . If that’s the case, you should be able to convert that to Roth without any tax due. The $5,500 limit is only on the annual contribution, but not the conversion.

  • I have $50k of post tax dollars in a checking account.
  • Read up on the pro-rata rule for more details.
  • I’m getting the “The amount you entered exceeds this fund’s balance.” error too.
  • If you’re age 50 or older and still have earned income, you get $7,000 per year to contribute.
  • I just made a call, and on the phone they did the position transfer directly.
  • I cannot find the answer to this online.

Perhaps that what the tax pro was talking about. So, I setup a traditional IRA’s for both myself and my spouse at vanguard, as well as a Roth IRA at vanguard for my wife. I already had a Roth IRA for myself at vanguard from previous investments as a resident/med student. I encourage converting shortly after the contribution . The pre-tax gains went to an IRA and was added to existing pre-tax assets in that IRA; I do not understand how the pro-rata rule will apply; please, clarify. The pre-tax gains would be subject to the pro-rata rule.

Backdoor Roth IRA: Understanding the loophole that gives high-income earners the tax benefits of a Roth IRA

Review details about IRA conversions and traditional and Roth IRA withdrawal rules and early withdrawal how to file backdoor roth ira in turbotax penalties. You have other losses or deductions to offset the tax due on conversion.

how to file backdoor roth ira in turbotax

I need some help putting my backdoor roth ira into turbotax. I received a 1099-R from by IRA broker stating that I had a distribution for 2021 but this was converted to my Roth. This was for $6000 each for me and my wife. Turbotax is saying that I have a tax penalty for over contributing to the Roth account. Any help would be greatly appreciated. Let’s say someone converts an entirely deductible traditional IRA worth $5,500 to a Roth IRA in 2016. Because these funds were entirely deductible, they would report $5,500 in additional income on his 2016 tax return.

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