Reporting the taxable contribution to an IRA or conversion to Roth on Form 8606 explains the transactions that occurred to the IRS. If you made a backdoor Roth contribution in the prior year, your custodian will provide you a Form 5498 to report the IRA contributions and a Form 1099-R to report Roth conversions.
As of March 2022, the Backdoor Roth IRA is still alive. Therefore, any taxpayer making more than $214,000 in income and is married and filing jointly can make an after-tax Traditional IRA contribution and then potentially do a tax-free Roth IRA conversion.
When you complete a Backdoor Roth conversion you MUST report it on form 8606. If you have ever tried a Backdoor Roth conversion yourself and don't know what form 8606 is, that is a problem.
Reporting the Backdoor Roth IRA properly on Turbotax is unfortunately even more complicated than filling out Form 8606 by hand. The key to doing it right is to recognize that you report the conversion step in the Income section but your report the contribution step in the Deductions and Credits section.
If you only converted some of the distribution to a Roth IRA, choose, "I did a combination of rolling over, converting, and cashing out the money." If you choose this option, Turbo Tax will ask you to identify how much of the distribution was converted to a Roth IRA, and how much of the distribution was rolled over ...
Around tax time, you will receive a 1099-R showing the distribution from your Traditional IRA that was converted to your Roth IRA the previous year. You'll also receive an informational reporting form (5498) that shows the contribution you made to the Traditional IRA and the amount that was converted to Roth.
Mega Backdoor Roth Tax Reporting
Form 1099-R: tells investors how much was taken out of a retirement account. The form alone designates a distribution that would be taxable if investors don't put the funds into another qualified plan. Form 5498: is sent when investors convert the funds and fund the Roth IRA.
Another reason is that a backdoor Roth contribution can mean significant tax savings over the decades because Roth IRA distributions, unlike traditional IRA distributions, are not taxable.
The backdoor Roth IRA strategy is still currently viable, but that may change at any time in 2022. Under the provisions of the Build Back Better bill, which passed the House of Representatives in 2021, high-income taxpayers would be prevented from making Roth conversions.
The backdoor Roth IRA strategy is still currently viable, but that may change at any time in 2022. Under the provisions of the Build Back Better bill, which passed the House of Representatives in 2021, high-income taxpayers would be prevented from making Roth conversions.
You can make backdoor Roth IRA contributions each year. Keep an eye on the annual contribution limits. If your annual contribution limit is $6,000, that's the most you can put into all of your IRA accounts. You might put the entire amount into your backdoor Roth.
Did you know there's a way to get up to $56,000 into your Roth IRA every year even though the contribution limit is $6,000 per year? Dubbed the “Mega Backdoor Roth,” this strategy allows taxpayers to increase their annual contributions into their Roth IRAs by as much as $56,000 (for 2019).
Backdoor and mega backdoor Roth
In a backdoor Roth, investors make a non-deductible contribution to a traditional IRA and then quickly convert to a Roth IRA. Once the money is in a Roth IRA, it's tax-free when taken out (if you meet the holding period and age requirements).
A Roth individual retirement account (Roth IRA) conversion lets you turn a traditional IRA into a Roth IRA. Roth IRA conversions are also known as backdoor Roth IRAs. There's no up-front tax break with a Roth IRA, but contributions and earnings grow tax free.
Mega backdoor Roth IRA taxes
Similarly, with a mega backdoor Roth IRA, your after-tax contributions are nontaxable. Only investment earnings on after-tax contributions are taxable at your current income tax rate at the time of the withdrawal for deposit to your Roth IRA.
Like the Backdoor Roth IRA, the “Mega” Backdoor Roth also got a reprieve in 2021, but its future is uncertain. The Mega Backdoor Roth is a 401(k) plan version of the Backdoor Roth IRA. It only works if your 401(k) plan allows for after-tax contributions and in-service distributions of after-tax funds.
Roth IRA contributions do not go anywhere on the tax return so they often are not tracked, except on the monthly Roth IRA account statements or on the annual tax reporting Form 5498, IRA Contribution Information.
Payroll Withholding.
Paying the conversion tax with withholdings is the surest way of paying the full tax and avoiding any underpayment fees and penalties.
While the legislation has not become law, the Build Back Better Act was set to eliminate the backdoor Roth IRA strategy as of Jan. 1, 2022.