Backdoor Roth Reporting

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Hi!
I did (for the first time) a Backdoor Roth Conversion in March 2022 (after realizing that my income was over the allowed limit for Roth contributions).

I expected to receive a 1099-R from Vanguard (the custodian). However, I see 2 of these (one each for Traditional IRA Account and Roth IRA Account). The one for Traditional IRA seems to match my expectations (in terms of col 2A, 2B, and 7 selections). Attaching screenshots of both here.
Is this normal to get 1099-R for Roth IRA Account in this case? What should I do with this (Roth's) form? [I googled but didn't find an answer :( ]

Thanks a lot for your input!

Cheers,
AH

[seattlecyclone]

The first one shows Distribution Code R in Box 7, which is for a recharacterized contribution. Did you first contribute directly to Roth, then realize your income was too high, ask to recharacterize the contribution into a traditional IRA, then convert that money back to Roth? This is what I'm gathering happened based on the forms you're sharing.

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@seattlecyclone

Did you first contribute directly to Roth, then realize your income was too high, ask to recharacterize the contribution into a traditional IRA, then convert that money back to Roth? 
That's correct (this is a Backdoor Roth Conversion as I understand it).

[seattlecyclone]

A backdoor Roth contribution doesn't usually include a mistaken direct Roth contribution and recharacterization. That's a separate thing that you'll need to account for as well.

[focals]

Hi @seattlecyclone ,

Sorry, I'm a little confused :(
I don't understand what the 'problem' is here. Would you be able to explain (and how it reflects in the 1099-Rs)? [I'd appreciate it]
I'm also attaching a screenshot of transactions in my Roth Account during this time last year.


Thanks much!
AH

[Taran Wanderer]

Backdoor Roth:

Step 1:  make non-deductible contribution to a traditional IRA.

Step 2:  roll money from the traditional IRA into the Roth IRA.

Step 3:  pay taxes on any earnings made in the traditional IRA prior to the rollover.


For example, if you put $5,000 into your traditional IRA and leave it there for 3 months making 3% interest, you will have $37.50 in earnings. You will owe tax on the $37.50.

Note that if you rolled your prior employer’s 401k into a traditional IRA, everything gets more complicated. The above steps assume you have zero dollars in any traditional IRA prior to the non-deductible contribution in the current tax year.

[seattlecyclone]

There's no "problem" necessarily. You did a few different transactions and you need to report them properly. No big deal. What I was getting at before is that a "backdoor Roth contribution" is typically understood to mean an after-tax traditional IRA contribution, followed by a Roth conversion. You added a step with the recharacterization bit, making it different from the more typical backdoor Roth maneuver.

The transaction history you show is a bit confusing because you contributed $2,360 and then recharacterized $6,533 a few days later. Were there some other contributions earlier in the year that you left off?

See this section of IRS Publication 590-A for more information about recharacterizations and how to report them. Since you recharacterized it as an after-tax contribution you'll need to report it on Form 8606 as instructed here. The traditional->Roth conversion transaction is also reported on Form 8606.

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@seattlecyclone

Thanks for clarifying.

I think I'll need to find a CPA this year :)

[MDM]

The biggest difficulty many people have with the backdoor Roth process is getting Form 8606 correct.  If you can do that, there is probably no need for a CPA.

See Backdoor Roth - Bogleheads, including the References section, for some "how to" directions.  The Form8606 tab in the case study spreadsheet might also be worth trying.

Remember that a recharacterization makes it as if you had contributed the original amount, and on the day of the original contribution, to the account recharacterized into.