Author Topic: Did a backdoor Roth in March 2017 for tax year 2016 and I am confused. HELP.  (Read 861 times)

jamesbond007

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This is my first time doing a backdoor Roth for my wife and myself. I waited till March this year (2017) to calculate MAGI based on all docs, and did the contribution to tIRA in March 2017 for 2016 and a few days later converted both the tIRAs to Roth IRAs at Vanguard. So my guess is that I will not receive a 1099-R for 2016 Tax Year? I already reported the tIRA contributions on turbotax. Now I have 2 questions:[/size]1. In turbotax, for the question "were there any nondeductible contributions to the IRA."  I answered Yes and entered 0 on the next screen for IRA basis. Is this correct? I read in the instructions to do so, but that is assuming I am reporting my conversion.[/color][/size]2. Since I did the conversion in March 2017, should I even so anything to report it in 2016 tax returns? Or will it go on the 2017 tax return? If this goes on 2017 tax return, then do I need to enter anything for basis in my question 1? Could I have just NO instead of YES?[/color][/size]I am confused. Did I screw up?[/color]


Also, is there a limit on how much I can convert for a tax year?[/size][/font]
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ClovisKid

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This is my first time doing a backdoor Roth for my wife and myself. I waited till March this year (2017) to calculate MAGI based on all docs, and did the contribution to tIRA in March 2017 for 2016 and a few days later converted both the tIRAs to Roth IRAs at Vanguard. So my guess is that I will not receive a 1099-R for 2016 Tax Year? I already reported the tIRA contributions on turbotax. Now I have 2 questions:

1.  In turbotax, for the question "were there any nondeductible contributions to the IRA."  I answered Yes and entered 0 on the next screen for IRA basis. Is this correct? I read in the instructions to do so, but that is assuming I am reporting my conversion.

2.  Since I did the conversion in March 2017, should I even so anything to report it in 2016 tax returns? Or will it go on the 2017 tax return? If this goes on 2017 tax return, then do I need to enter anything for basis in my question 1? Could I have just NO instead of YES?  I am confused. Did I screw up?

Also, is there a limit on how much I can convert for a tax year?

Your original posting has some serious formatting issues and you had >120 people read it, but no one replied.  I've quoted here with some clean-up.  Apologies if I cut anything out. 

To help answer your questions:

  • Short answer:  You answer Yes, but the basis question is only for doing conversions and you are not doing a conversion for the 2016 tax year (see answer to question #2).

    Your 2016 contribution goes on the 2016 return, since it is a 2016 tax year contribution.  The conversion is a 2017 tax year event.

    TurboTax will ask you if you made any contributions to either a Traditional IRA or a Roth IRA for the 2016 tax year.  You will answer that you contributed to the Traditional.  Let's assume that you are married filing jointly, under 50 years old, and you contributed the max of $11,000.  Later, it will ask you how much you contributed FOR 2016 (the "FOR" is mine, as it is a confusing question).  You will put the $11,000.  Right underneath that, they will ask you of the $11,000, how much was contributed between January 1 and April 18, 2017.  You again answer $11,000.  Yes, you repeat the answer.  When later the program asks if you "recharacterized", answer No.

    Later, when they ask you if you tracked your non-deductible contributions to your IRA, you answer Yes (that $11,000 is your tracked amount, assuming it was 100% non-deductible).  Later, your basis as of December 31, 2015 is probably zero if this is your first non-deductible contribution to an IRA or if you previously converted prior balances to a Roth.

    If you messed any of this up the first time around, TurboTax is very forgiving and allows you to go back and change anything.  You can't technically "screw up" until you file the return with the IRS.
  •   As mentioned above, the conversion is a 2017 tax event, regardless to what year you contributed the funds.  Worry about the confusion for that one until next year.  You will receive the 1099-R for the 2017 tax year.

There is no limit to the conversion amount, but 100% of all pre-tax dollars will be taxed on any portion that you convert as well as you will be taxed on all gains from the pre-tax contributions and gains from the post-tax/non-deductible contributions.  If you have any pre-tax IRAs that you do not want to convert to a Roth, then you should roll those into an active 401k (if you have one) so that portions of that do not become taxable (that's a whole other posting, and nightmare.)

jamesbond007

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Thank you for your response. Not sure what happened with formatting there.


I did file my tax returns but I chose I did not track anything as TurboTax had asked me specifically about 2015 and past and I didn't have any. I guess it will ask me about 2016 and past next year and I will enter $11,000. If not I may have to file an amendment first.
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aj485

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Quote
I did file my tax returns but I chose I did not track anything as TurboTax had asked me specifically about 2015 and past and I didn't have any. I guess it will ask me about 2016 and past next year and I will enter $11,000. If not I may have to file an amendment first.

Did your filing include 2 Form 8606s https://www.irs.gov/pub/irs-pdf/f8606.pdf (one for you and one for your wife), each showing $5500 on line 1, where you are supposed to 'Enter your nondeductible contributions to traditional IRAs for 2016, including those made for 2016 from January 1, 2017, through April 18, 2017 (see instructions)'?  If not, then you did file incorrectly and need to file an amendment.  I don't use TurboTax, so I can't tell you how to answer the questions to generate a Form 8606, but you need to submit one for every year you make a non-deductible contribution.

MDM

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You might see Backdoor Roth IRA - Bogleheads and links therein for perhaps the most comprehensive information on backdoor Roths.  You might still have questions, but it should be worthwhile to read that.

MustacheAndaHalf

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For pre-tax contributions, I can see how cost basis would be $0.  The cost basis is how much of the money has already been taxed.  But for an after-tax contribution, a $0 cost basis doesn't make sense - it's saying you should be taxed twice on the same money.

jamesbond007

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Did your filing include 2 Form 8606s https://www.irs.gov/pub/irs-pdf/f8606.pdf (one for you and one for your wife), each showing $5500 on line 1, where you are supposed to 'Enter your nondeductible contributions to traditional IRAs for 2016, including those made for 2016 from January 1, 2017, through April 18, 2017 (see instructions)'?  If not, then you did file incorrectly and need to file an amendment.  I don't use TurboTax, so I can't tell you how to answer the questions to generate a Form 8606, but you need to submit one for every year you make a non-deductible contribution.

I just checked the filing and it did include two 8606 forms each showing $5500 on line 1 and line 14. The basis is '0' as this is the first time I am contributing to any IRA. I guess it's all good then.

Thank you.

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