The way to Report 2022 Backdoor Roth In FreeTaxUSA (Up to date)

[Updated on January 16, 2023 with screenshots from FreeTaxUSA for 2022 tax filing.]

TurboTax and H&R Block are the 2 main tax software program for submitting private tax returns. A low-cost various to TurboTax and H&R Block software program is FreeTaxUSA. FreeTaxUSA isn’t solely for easy returns. It may well nonetheless deal with extra complicated transactions, such because the Backdoor Roth.

Simply as a refresher, a Backdoor Roth includes making a non-deductible contribution to a Conventional IRA adopted by changing from the Conventional IRA to a Roth IRA. Each the contribution and the conversion should be reported within the tax software program. For extra data on Backdoor Roth, please learn Backdoor Roth: A Full How-To.

What To Report

You report on the tax return your contribution to a Conventional IRA *for* that yr, and also you report the conversion to Roth *throughout* that yr.

For instance, if you find yourself doing all your tax return for yr X, you report the contribution you made *for* yr X, whether or not you truly did it throughout yr X or the next yr between January 1 and April 15. You additionally report the conversion to Roth *throughout* yr X, whether or not the contribution was made for yr X, the yr earlier than, or any earlier years. Due to this fact a contribution made throughout the next yr for yr X goes on the tax return for yr X. A conversion completed throughout yr Y after you made a contribution for yr X goes on the tax return for yr Y.

You do your self an enormous favor and keep away from a whole lot of confusion by doing all your contribution for the present yr and ending your conversion in the identical yr. I known as this a “deliberate” Backdoor Roth — you’re doing it intentionally. Don’t wait till the next yr to contribute for the earlier yr.  Contribute for yr X in yr X and convert it throughout yr X. Contribute for yr Y in yr Y and convert it throughout yr Y. This manner the whole lot is clear and neat.

In case you are already off by one yr, catch up. Contribute for each the earlier yr and the present yr, then convert the sum throughout the identical yr. See Make Backdoor Roth Simple On Your Tax Return.

Right here’s the state of affairs we’ll use for example:

You contributed $6,000 to a standard IRA in 2022 for 2022. Your earnings is just too excessive to say a deduction for the contribution. By the point you transformed it to Roth IRA, additionally in 2022, the worth grew to $6,200. You haven’t any different conventional, SEP, or SIMPLE IRA after you transformed your conventional IRA to Roth. You didn’t roll over any pre-tax cash from a retirement plan to a standard IRA after you accomplished the conversion.

In case your state of affairs is completely different, you’ll have to make some changes to the screens proven right here.

Earlier than we begin, suppose that is what FreeTaxUSA reveals:

We’ll examine the outcomes after we enter the Backdoor Roth.

Convert From Conventional IRA to Roth

The tax software program works on earnings objects first. Despite the fact that the conversion occurred after the contribution, we enter the conversion first.

Whenever you convert from Conventional IRA to Roth, you’ll obtain a 1099-R. Full this part provided that you transformed *throughout* the yr for which you might be doing the tax return. When you solely transformed throughout the next yr and also you don’t have a 1099-R but, skip to the subsequent part: Conventional IRA Contribution. You’ll full this part subsequent yr.

In our instance, by the point you transformed, the cash within the Conventional IRA had grown from $6,000 to $6,200.

Click on on “Add a 1099-R” when it asks you in regards to the 1099-R.

It’s only a common 1099-R.

Enter the 1099-R precisely as you will have it. Take note of the code in Field 7 and the checkboxes. It’s regular to have the identical quantity because the taxable quantity in Field 2a, when Field 2b is checked saying “taxable quantity not decided.”  Take note of the distribution code in Field 7. My 1099-R has code 2, and the IRA/SEP/SIMPLE field can also be checked.

Proper after you enter the 1099-R, you will notice the refund quantity drop. Right here we went from a $1,540 refund to $264. Don’t panic. It’s regular and short-term. The refund quantity will come up once we end the whole lot.

It’s not an inherited IRA.

It asks you about Roth conversion. Reply Sure to conversion and enter the transformed quantity. This entire 1099-R is the results of a Roth conversion.

You might be completed with this 1099-R. Repeat in case you have one other 1099-R. When you’re married and each of you probably did a Backdoor Roth, take note of whose 1099-R it’s once you enter the second. You’ll have issues in case you assign each 1099-R’s to the identical particular person once they belong to every partner.

It asks you in regards to the foundation carried over from earlier years. When you did a clear “deliberate” backdoor Roth yearly, though technically the reply is Sure, you don’t have anything to hold over from yr to yr. In our easy instance, we don’t have any. When you do, reply Sure and get the quantity from line 14 of Type 8606 out of your earlier yr’s tax return.

We didn’t take any catastrophe distribution.

Now proceed with all different earnings objects till you might be completed with earnings. Your refund meter continues to be decrease than it must be, however it can change quickly.

Conventional IRA Contribution

Discover the IRA Contributions part below the “Deductions / Credit” menu.

Reply Sure to the primary query and enter your contribution. Depart the reply to “Did you recharacterize” at No. In our instance, you contributed $6,000 on to a Conventional IRA. When you initially contributed to a Roth IRA and you then recharacterized the contribution as conventional contributions, enter the quantity within the Roth IRA field and select Sure beneath when it asks you whether or not you recharacterized.

Your refund quantity goes up once more! It was a refund of $1,540 earlier than we began. It went down lots and now it’s again to $1,496. The $44 distinction is because of paying tax on the $200 earnings earlier than we transformed to Roth.

We didn’t contribute to a SEP, SIMPLE, or solo 401k plan on this instance. Reply Sure in case you did.

Withdrawal means pulling cash out of a Conventional IRA again to your checking account. Changing to Roth is just not a withdrawal. Reply ‘No‘ right here.

In our instance, we don’t have any foundation carried over from the earlier years. We don’t have any cash in conventional, SEP, or SIMPLE IRAs as of the tip of the yr (we already transformed to Roth by then). Our contribution was made in the course of the yr in query, not within the following yr.

It tells us we don’t get a deduction. We all know. It’s as a result of our earnings was too excessive. That’s why we did the Backdoor Roth to start with.

When you solely contributed *for* final yr however you didn’t convert till the next yr, bear in mind to come back again subsequent yr to complete the conversion half.

Taxable Revenue from Backdoor Roth

After going by way of all these, let’s affirm the way you’re taxed on the Backdoor Roth. Click on on “View 1040” on the right-hand facet.

Search for Line 4 in Type 1040.

It reveals $6,200 in IRA distributions in line 4a and solely $200 is taxable in line 4b. In case you are married submitting collectively and each of you probably did a backdoor Roth, the numbers right here will present double.

Tah-Dah! You bought cash right into a Roth IRA by way of the backdoor once you aren’t eligible to contribute to it instantly. You’ll pay tax on a small quantity in earnings in case you waited between contributions and conversion. That’s negligible relative to the advantage of having tax-free development in your contributions for a few years.

Troubleshooting

When you adopted the steps and you aren’t getting the anticipated outcomes, right here are some things to verify.

W-2 Field 13

Make sure that the “Retirement plan” field in Field 13 of the W-2 you entered into the software program matches your precise W-2. In case you are married and each of you will have a W-2, be certain your entries for each W-2’s match the precise varieties you acquired.

If you find yourself not lined by a retirement plan at work, resembling a 401k or 403b plan, your Conventional IRA contribution could also be deductible, which additionally makes your Roth conversion taxable.

Self vs Partner

In case you are married, be sure to don’t have the 1099-R and the IRA contribution combined up between your self and your partner. When you inadvertently assigned two 1099-Rs to at least one particular person as a substitute of 1 for you and one in your partner, the second 1099-R is not going to match up with a Conventional IRA contribution made by a partner. When you entered a 1099-R for each your self and your partner however you solely entered one Conventional IRA contribution, you’ll be taxed on one 1099-R.