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Backdoor Roth IRA Entry in ProConnect - MFJ

Forum|Forum|3 years ago
April 3, 2023
4 replies
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Taxpayer is married filing jointly, and the spouse contributed $6k to a non-deductible IRA and immediately converted to a roth.

Their combined income is $700k for 2022.

Right now, the $6k is coming through as taxable on the 1040 (based on the information entered from the 1099-R).

How does this get entered correctly?

ProConnect Tax

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Best answer by taxmo

Here is how to do a backdoor Roth IRA contribution in ProConnect.

- Enter the (presumably non-deductible) Traditional IRA contribution: (They'll get a 5498 for it eventually, but may not be until as late as May 31st). Deductions -> Adjustments to Income -> Retirement -> IRA contributions -> enter the amount.

- Then enter the 1099-R for the withdrawal from the Traditional IRA, which may have distribution code 2 (early distribution with exception). It will also likely have a taxable amount, but with the "taxable amount not determined" box checked. It should also have the "total distribution" box checked (see below). Enter all that as is into ProConnect. Then go to the Form 8606 tab -> Conversions to Roth / Traditional distributions, and enter the amount of the conversion.

Pro-rata rule: If the person's traditional IRAs have both deductible (pre-tax) or non-deductible (after-tax) contributions (contributions while their income was too high), any rollover is a proportional amount of both. Pro-rata rule treats all IRAs as one IRA. If they want to keep some traditional IRA funds as pre-tax, may want to roll the entire pre-tax IRA to a 401k first, then use the IRA for after-tax contributions that will be converted to Roth.

itonewbie

Level 15

You need to enter the taxpayer's and spouse's contributions under separate columns.

Read this article for detailed instructions:

https://proconnect.intuit.com/support/en-us/help-article/retirement-tax-credits-deductions/entering-conversion-traditional-ira-roth-ira/L8Pqo8KNf_US_en_US?uid=lg16ccar

---------------------------------------------------------------------------------Still an AllStar

itonewbie

Level 15

@tccpg289 wrote:

Taxpayer is married filing jointly, and the spouse contributed $6k to a non-deductible IRA and immediately converted to a roth.

Their combined income is $700k for 2022.

Right now, the $6k is coming through as taxable on the 1040 (based on the information entered from the 1099-R).

How does this get entered correctly?

If the spouse contributed $6K and that was distributed for ROTH conversion along with earnings/loss, 1099-R wouldn't have reported that $6K is taxable because that's the basis. Take a second look at the 1099-R and make the relevant entries in accordance with the article cited above.

---------------------------------------------------------------------------------Still an AllStar

T

tccpg289Author

Level 5

Ultimately it should not be taxable, I am just trying to figure out how to enter it in the software so that it doesn't come through as taxable.

qbteachmt

Level 15

"Ultimately it should not be taxable"

That's because the entire amount converted also is basis. That's why it works, so that's what the data entries need to reflect. If none of what I asked is true, then there will be pro-rata tax computed.

The 1099-R issuer may not provided everything that has to be entered. For instance, they don't know if there are other accounts of that type with deducted contributions or never-taxed earnings. Only the taxpayer and you will be able to enter what applies in that worksheet.

Don't yell at us; we're volunteers

qbteachmt

Level 15

"and the spouse contributed $6k to a non-deductible IRA and immediately converted to a roth."

Was there only nondeducted post-tax amounts ever into that type of account (Trad, SEP, SIMPLE IRA)? Was there no other nonbasis pre-tax contribution, no earnings, in any of those account types for this spouse?

Don't yell at us; we're volunteers

T

taxmo

Answer

Intuit Community Champion

Here is how to do a backdoor Roth IRA contribution in ProConnect.

- Enter the (presumably non-deductible) Traditional IRA contribution: (They'll get a 5498 for it eventually, but may not be until as late as May 31st). Deductions -> Adjustments to Income -> Retirement -> IRA contributions -> enter the amount.

- Then enter the 1099-R for the withdrawal from the Traditional IRA, which may have distribution code 2 (early distribution with exception). It will also likely have a taxable amount, but with the "taxable amount not determined" box checked. It should also have the "total distribution" box checked (see below). Enter all that as is into ProConnect. Then go to the Form 8606 tab -> Conversions to Roth / Traditional distributions, and enter the amount of the conversion.

Pro-rata rule: If the person's traditional IRAs have both deductible (pre-tax) or non-deductible (after-tax) contributions (contributions while their income was too high), any rollover is a proportional amount of both. Pro-rata rule treats all IRAs as one IRA. If they want to keep some traditional IRA funds as pre-tax, may want to roll the entire pre-tax IRA to a 401k first, then use the IRA for after-tax contributions that will be converted to Roth.

T

tccpg289Author

Level 5

So if it is flowing correctly on the 8606:

-nondeductible contribution on Line 1

-Same amount listed as nontaxable on line 13 and Part II line 16?

qbteachmt

Level 15

As you stated, if she had previously contributed to that IRA and had deducted those contributions on her return, then any conversion is now taxable to a %.

Example:

She put in $5,000 one year, $6,000 another year, both were deducted. And they have earnings, so let's pretend the account had a FMV of $12,000.

Now she means to backdoor for Roth IRA. She puts $6,000 as nondeductible into Trad IRA, then converts $6,000 to Roth IRA. That isn't the same $6,000. You can't pick and choose.

So, we do the math:

$6,000 Basis (her nondeducted contribution) divided by $18,000 total = 1/3 or 33% of the conversion is Basis and not taxable. That is $2,000. The other $4,000 (2/3 of the conversion) is pre-taxed money considered to be from earlier contributions and earnings and is now taxable.

And her Basis is updated: $6,000 in Basis minus $2,000 just taxed means the next conversion will use a new starting point of $4,000 remaining basis. Plus any contributions if she tries to do backdoor again.

In other words, she lost the Backdoor "nontaxable" benefit, but she still gets to put new money into Roth IRA even with high income, by using the "nondeductible and convert" tactics.

Don't yell at us; we're volunteers

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