2022 & 2023 "Backdoor Roth"

[chapguy19]

Per client: 

1. For taxable IRA distributions, I see $6k listed and counted towards AGI but I believe it should be $0. The background is, in Jan '23 I did a backdoor Roth conversion of $6k intended for tax year 2022; then, in May '23, I did another backdoor Roth conversion of $6.5k intended for tax year 2023.

I have 2023 1099-R for both of these transactions. How can I force the full $12500 to be non-taxable.

I enter the $12500 on Adjustments to income but the 8606 only subtracts $6500, leaving $6K as taxable on the 1040.

P.S. I hate this cowboy nonsense.

Much thanks, in advance, Christopher

[rbynaker]

The problem started when they didn't tell you that they made an IRA contribution for TY 2022.  So they didn't file an 8606 with their 2022 1040 to start tracking the $6K basis.  I've mailed these in stand-alone before.  They seem to just go into a black hole.  In theory there could be a small penalty (I think $50 but I haven't looked in a while).

Then the problem snowballed when their $6K basis (assuming the 2022 IRA contribution would have been non-deductible) didn't carry forward to the 2023 Form 8606 Line 2 from the 2022 Form 8606 Line 14.  You'll need to manually get that $6K into 2023 at this point to get it to show up on Line 2.

I would have them sign & paper file a 2022 Form 8606 just to be consistent.  I've heard some preparers will skip the prior year forms and just keep the backup on file if questioned and add it as the starting point for 2023.

Rick

[qbteachmt]

"did a backdoor Roth conversion of $6k intended for tax year 2022"

Conversions are reportable for the year they happen. There is no Tax Year assignment of a conversion.

That would be reported on a 1099-R for 2023, get put on the tax return for 2023, and needs Basis entered, to show it is nontaxable as backdoor.

"then, in May '23, I did another backdoor Roth conversion of $6.5k intended for tax year 2023."

They are tracked by year, not by month. They are both reported on the 2023 1040.

Did you enter FMV on Dec 31, 2023 of all Trad IRA, SIMPLE IRA, SEP IRA, any rollover Trad IRA, should all be $0? And then you enter the total Basis. The tax year of contribution is meaningless, for purposes of Backdoor. The Basis status is what matters.