Client is making a backdoor Roth contribution.
The 1099-R form shows code 2 for the IRA -- 7500 distributed and 7500 taxable.
However, my client never received a tax benefit for the 7500 when it went into the IRA originally. Is it possible to make an adjustment?
The 1099-R is for money Out. The issuer doesn't know what all was done afterwards.
You, the tax preparer, use the software to account for what happened next.
As long as the person making the backdoor rollover has no other funds in any Trad IRA, SEP IRA and SIMPLE IRA, then there is no taxable event. They needed to end the year with $0 FMV.
"The make contribution and roll it, almost immediately, into the Roth."
The nondeducted contribution is Basis. On your worksheet, you will enter their Basis, only their post-tax contributions are Basis. If there is even a bit of earnings, that creates a pro rata taxable conversion.
here is how I do it and it works great for me
1. Enter the traditional IRA contribution on the IRA worksheet
2. If then flows naturally to form 8606
3. Enter 1099-R Worksheet, make sure IRA box is checked
4. Scroll down to B-5, check that box that rolled over to Roth
The End
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