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Form 8606 Back door Roth

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Level 3

When entering a back door roth conversion, should Part 1 of form 8606 be populating? 

If not, how do I prevent it from populating? 

Client contributed to Traditional IRA in 2019, then immediately converted to Roth in 2019. Basis is same as the amount converted, so they should not owe tax on the distribution on the 1099 R

In the past on PY returns that I have not prepared, 8606 part 1 has been blank with only Part 2 having any info

Edit to add - the client letter also has the paragraph about making the ira contribution, I don’t think this should be there because they’ve already made a contribution and then converted it into a Roth. Will fixing part 1 of 8606 as referenced above make that part of the client letter go away? How do I fix? This is my first return in the software so I am still learning.

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Level 13

"When entering a back door roth conversion, should Part 1 of form 8606 be populating?"

Yes; example here: https://www.merriman.com/wealth-enhancement/how-to-report-a-backdoor-roth-ira-contribution-on-your-t...

"Basis is same as the amount converted, so they should not owe tax on the distribution on the 1099 R"

As long as the person has no other funds in any Traditional IRA. Otherwise, this nondeductible amount is part of the % that is not taxable, but the Total basis and Total account(s) balance(s) across all Traditional IRA accounts is used for how much will be taxable upon conversion. See this article:

https://www.irs.gov/instructions/i8606

 

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Highlighted
Level 13

"When entering a back door roth conversion, should Part 1 of form 8606 be populating?"

Yes; example here: https://www.merriman.com/wealth-enhancement/how-to-report-a-backdoor-roth-ira-contribution-on-your-t...

"Basis is same as the amount converted, so they should not owe tax on the distribution on the 1099 R"

As long as the person has no other funds in any Traditional IRA. Otherwise, this nondeductible amount is part of the % that is not taxable, but the Total basis and Total account(s) balance(s) across all Traditional IRA accounts is used for how much will be taxable upon conversion. See this article:

https://www.irs.gov/instructions/i8606

 

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"Level Up" is a gaming function, not a real life function.

View solution in original post

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Level 3

This makes sense thank you so much. 

So the PY accountant incorrectly left Part 1 blank. I don’t see how this could cause problems so long as I fill it out going forward - is there anything I should be worried about here?

To my knowledge they do not have any amounts in traditional IRA or any other types except for the Roth. They immediately move anything from the traditional to the Roth.

 

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Level 13

"the PY accountant incorrectly left Part 1 blank."

It depends on what happened.

Part 1 = Contributions and Distributions for qualified deferred accounts.

Part II = Conversions.

Part III = Distributions.

You use what applies to what happened that year.

"To my knowledge they do not have any amounts in traditional IRA"

You should confirm with them: Traditional, SEP and SIMPLE.

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"Level Up" is a gaming function, not a real life function.
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Level 3

Last year was exactly the same as this year - they made the non deductible contribution to the Traditional, then immediately converted to a Roth.

I will confirm no balance in Traditional, SEP, and Simple. Thank you so much - the article you sent was extremely helpful.

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