How to Report a Backdoor Roth IRA With Form 8606 (2024)

FAQs

How to Report a Backdoor Roth IRA With Form 8606? ›

A backdoor Roth IRA allows you to get around income limits by converting a traditional IRA into a Roth IRA. You'll get a Form 1099-R the year you make the conversion. Contributing directly to a Roth IRA is restricted if your income is beyond certain limits, but there are no income limits for conversions.

A backdoor Roth IRA allows you to get around income limits by converting a traditional IRA into a Roth IRA. You'll get a Form 1099-R the year you make the conversion. Contributing directly to a Roth IRA is restricted if your income is beyond certain limits, but there are no income limits for conversions.

If Form 8606 is filed separately, it cannot be e-filed and must be printed out and mailed to the IRS. The taxpayer address and preparer information can be manually filled in after the form is printed.

In many cases, a backdoor Roth IRA will not result in any tax implications. This is the case if you immediately convert your non-deductible traditional IRA contributions to your Roth IRA. However, some backdoor Roth IRAs may still result in tax liability.

Penalties. Without reasonable cause, if an IRA owner fails to file a Form 8606 when required, he/she owes a $50 penalty. Additionally, if an IRA owner overstates his/her nondeductible contribution amount on Form 8606 without reasonable cause, a $100 penalty is owed.

If you aren't required to file an income tax return but are required to file Form 8606, sign Form 8606 and send it to the IRS at the same time and place you would otherwise file Form 1040, 1040-SR, or 1040-NR. Be sure to include your address on page 1 of the form and your signature and the date on page 2 of the form.

Form 8606 is the key to reporting backdoor Roth IRAs successfully. The tax form, which is filed as part of your overall return, reports to the IRS that the Traditional IRA contribution you made to start the process of the backdoor Roth IRA was not deductible.

Use Form 8606 to report: Nondeductible contributions you made to traditional IRAs. Distributions from traditional, SEP, or SIMPLE IRAs, if you have ever made nondeductible contributions to traditional IRAs. Conversions from traditional, SEP, or SIMPLE IRAs to Roth IRAs.

We'll automatically generate and fill out Form 8606 (Nondeductible IRAs) if you reported any of these on your tax return: Nondeductible contributions made to a traditional IRA.

What is the downside of Backdoor Roth? ›

Cons: All or part of a backdoor Roth IRA conversion could be a taxable event. You may have to pay federal, state, and local taxes on converted earnings and deductible contributions. Conversions could kick you into a higher tax bracket for the year.

Yes. Backdoor Roth IRAs are still allowed in 2024. However, there has been talk of eliminating the backdoor Roth in recent years. And the future is, of course, difficult to predict.

The five-year rule could foil your withdrawal plans if you don't know about it ahead of time. This rule for Roth IRA distributions stipulates that five years must pass after the tax year of your first Roth IRA contribution before you can withdraw the earnings from the account tax-free.

Traditional and Roth IRA contributions are reported on Form 5498, IRA Contributions Information. Your IRA trustee or issuer—not you—is required to file this form with the IRS, usually by May 31. You won't find this form in TurboTax, nor do you file it with your tax return.

Roth contributions aren't tax-deductible, and qualified distributions aren't taxable income. So you won't report them on your return. If you receive a nonqualified distribution from your Roth IRA you will report that distribution on IRS Form 8606.

IRA contributions will be reported on Form 5498: IRA contribution information is reported for each person for whom any IRA was maintained, including SEP or SIMPLE IRAs. An IRA includes all investments under one IRA plan. The institution maintaining the IRA files this form.