BACKDOOR ROLLOVER

[erickmers]

MY CLIENT DID A BACKDOOR ROLLOVER FOR 2020 AND 2021  IN THE AMOUNT OF 6K FOR EACH YEAR BUTH  THEY RECIEVED A 1099-R  IN 2022 IN THE AMOUNT FOR 12K  FOR BOTH YEARS

I CAN NOT FIGURE OUT HOW TO REPORT THIS   IT WANTS TO  TAX 6K   

DID THE BROKERAGE HOUSE MAKE A MISTAKE SHOULD A 1099-R HAVE BEEN ISSUED FOR EACH YEAR?  

IS THERE A WAY TO REPORT THIS ON THE 2021 TAX RETURN?

[qbteachmt]

First of all, it's either a Backdoor (which is a conversion process) or it is a Rollover.

The word Rollover is used to describe a movement of funds from one retirement account type to one of that similar account type.

A Backdoor Roth is a conversion. It relies on the funds in the pre-tax account to not have been pre-tax, to have been Basis already, so it moves post-tax funds from a tax deferred account to a tax exempt account. There would be no tax owed on the conversion, when the only funds that exist are already taxed (basis).

A 1099-R is issued for the year the distribution happened. Not the "year of funds." It's the reporting of the event. If they converted in 2022, that will not be on any tax form yet; they will get a 1099-R for 2022 and it goes on the 2022 tax filing.

You did not describe when the 2020 funds were deposited to the Traditional IRA or when the 2021 funds were contributed to the Traditional IRA. Both contributions would need to have been non-deductible. If both were made at the same time and then immediately converted, and you have a 2022 conversion, that doesn't make sense for the 2020 amount, because it could not have been just recently contributed.

The Backdoor functions as non-taxable because:

Everything in the account is Basis and only Basis; it is moved (converted) so quickly that there are no earnings, so there is nothing taxable at all . Any other scenario is going to mean the conversion is taxable on a pro rata basis.

Hope that helps.

[erickmers]

For tax year 2021 they received a 1099-R with distribution code 2  for 12k  from traditional IRA they  put 6k into the Roth for 2020 and 202 for the Backdoor rollover Since they did this before April 15th of 2021 6k was for 2020 and 6k was for 2021

I Think the broker should’ve done two separate 1099R  one for 2020 and one for 2021 even though it was done in 2021 am I correct or is there a way to report this

[rbynaker]

For the 2020 tax return you would have filed a Form 8606 showing the $6K non-deductible contribution on line 1.

For the 2021 tax return you would have filed a Form 8606 showing another $6K non-deductible contribution on line 1 and the first $6K of basis on line 2.  Now the total basis in the IRA is $12K (line 3).  I don't know what software you're using but you may need to enter $0 as the FMV of Traditional IRAs on 12/31/21 to get the rest of Part I to populate and carry $0 to the 1040 line 4b.

This assumes there are no other non-Roth IRAs (including SEP-IRAs, SIMPLE-IRAs, etc.)

Rick

[qbteachmt]

"I Think the broker should’ve done two separate 1099R one for 2020 and one for 2021"

No. The 1099-R is for the Distribution event. There is one Reporting for that year. Once the money is in the account(s) it is not segregated by year. The 1099-R is an annual report.

Yes, if both amounts went into the Trad IRA account at the same time, both as nondeductible, for this one taxpayer (but the contributions would be reported in different tax years) and then the entire amount was immediately converted to Roth, so there are no earnings (no gain or loss), and there are no other sheltered tax-deferred amounts (the Form 8606 has a line where you enter the FMV of those similar accounts) and this means $12,000 was converted, and that would have been direct, so no withholding, then you have $0 taxable amount.