I assume the answer is to check both Trad and Roth for each of us. For every year you don’t fix the IRA issue you get a 6% penalty. After answering the questions on the following screens, TurboTax said “Your IRA Contribution Isn’t Permitted” because “I am not permitted to contribute more than the amount of my earned income”.

Follow the steps below in the order given, for the desired outcome. It’s crucial to be aware of these pitfalls to ensure a smooth and tax-efficient transaction. Your success with backdoor Roth conversions depends on staying clear of common mistakes.

I ran into an issue during the input of a backdoor Roth IRA conversion for 2024, while following the instructions of the TurboTax Help article, describing the two steps for the TurboTax Desktop version. Remember that if you have any earnings on your traditional IRA before the conversion, those earnings are subject to tax at your ordinary income rate. Be sure that you do not enter anything for a Roth IRA contribution since the money was placed in the Roth IRA through a conversion, not a contribution.

Are There Any Penalties for Incorrectly Reporting a Backdoor Roth IRA Conversion?

Your traditional Roth IRA contributions might not be possible if you earn more than $165,000 as a single filer or $246,000 as a married couple in 2025. But a perfectly legal strategy called a backdoor Roth IRA makes these retirement benefits available to you. Let’s have a look at how to properly enter your backdoor Roth IRA conversion, so you can be sure that the figures you’re quoting are the right ones. So some taxpayers going through this section will see the additional question while others will not. Okay, you’re now done with entering the conversion step into Turbotax. If you scroll down to the Retirement Plan and Social Security section you’ll see $6,000 ($12,000 if you did a Backdoor Roth IRA for your spouse too) next to the IRA, 401(k), Pension Plans (1099-R) line.

When a Backdoor Roth IRA Might Not Be Suitable

Standard conversions usually involve tax-deductible traditional IRA funds, which means paying taxes during conversion. An backdoor roth turbotax ideal backdoor strategy uses non-deductible contributions to keep the tax impact low. The backdoor strategy lets you skip past income restrictions completely since Roth conversions don’t have income limits.

Step 4: File IRS Form 8606

Hit continue and you’ll go back to the Deductions and Credits menu. Also, make note of the link at the bottom of the document in case it also applies to your situation – making a contribution in 2024 for your 2023 tax return if it was not reported on your 2023 return. Yes, you can perform a backdoor Roth IRA conversion annually. There are no limits on how often you can do this, as long as you follow the rules and properly report the transactions. This strategy can be particularly useful for high-income earners who want to consistently build up their Roth IRA savings over time. The 5-year rule for backdoor Roth IRA conversions states that you must wait five years from the date of conversion before withdrawing the converted funds penalty-free if you’re under 59½.

Why High Earners Use This Strategy

Most people choose the backdoor Roth strategy because they earn too much for direct contributions. The 2025 income limits prevent direct Roth IRA contributions if you earn more than $165,000 as a single filer or $246,000 as a married couple filing jointly. This strategy gives high-income earners a legal way to get Roth benefits despite these limits. This strategy works differently than a standard Roth conversion too.

• The taxable amount of your Traditional IRA to Roth IRA conversion is being affected by the ‘pro rata rule’.
• If you scroll down to the Retirement Plan and Social Security section you’ll see $6,000 ($12,000 if you did a Backdoor Roth IRA for your spouse too) next to the IRA, 401(k), Pension Plans (1099-R) line.
• However, contributions can be withdrawn at any time without penalty.
• Yet it only needs the right timing and proper documentation as you convert from a traditional IRA to a Roth IRA.
• The backdoor approach needs two steps – first putting money in a traditional IRA, then converting it to a Roth IRA.

Some advisors recommend a 30-day waiting period so transactions appear on separate statements if you need documentation later. Some employers offer something even better – a “mega backdoor Roth” strategy. This advanced option lets eligible employees convert after-tax 401(k) contributions to a Roth IRA or Roth 401(k). The potential additional contributions can reach up to $70,000 ($77,500 if age 50-59, and $81,250 for those age 60-63). The backdoor Roth IRA strategy works best for specific financial situations and retirement planning goals. Let’s look at how this approach might fit your circumstances.

The IRS publishes annual contributions and income limits, including phase-out ranges, which reduce the contribution amount as income increases. Investors exceeding income limits must use a backdoor Roth IRA strategy instead of contributing directly to a Roth. You can’t do a backdoor Roth IRA conversion if you don’t have earned income. This is because the first step in the process is to make a non-deductible contribution to a traditional IRA, and you can’t contribute to an IRA, deductible or non-deductible, unless you have earned income. So, if your other Traditional IRA account(s) is proportionally high on the pre-tax side, then more of the amount that was converted to the Roth will be taxed. Next, Turbotax will ask you the same three questions about basis and amount in the IRA at the end of the previous year that it asked at the end of the conversion section.

The backdoor Roth IRA process follows four straightforward steps. While it might sound complicated, you can manage it easily by following these distinct phases. Many high-income professionals expect to be in higher tax brackets when they retire, which makes tax-free withdrawals even more valuable. These are the steps to report your Roth conversion.

Contact us today to learn more about how we can help you achieve financial independence, even in the face of economic uncertainty. It’s an IRS-approved strategy to grow your retirement savings tax-free. The backdoor Roth IRA process might look simple, but several pitfalls can make this strategy more complex than expected. You’ll want to understand these common errors to ensure a smooth conversion and avoid any unwanted tax issues.

If Vanguard (or whoever) didn’t check that box, then they had better have left box 2a blank or put a $0 in it. In general, you’ll have a 2 in box 7 and the IRA box afterward should be checked too. Reporting a backdoor Roth conversion is a two-step process.

Each backdoor Roth IRA conversion triggers a new five-year waiting period before withdrawals. If you withdraw funds before the five-year period elapses (even if you’re over the age of 59½), your withdrawal is subject to a 10% penalty. If you consistently earn too much to contribute to a Roth IRA directly, consider repeating this process every year.

• If this form isn’t included in your 2023 return, you’ll need to fill out a 2023 Form 8606 to record your nondeductible basis for conversion, and mail this form to your designated IRS office.
• Understanding how a backdoor Roth IRA works becomes significant if you have maxed out your 401(k) contributions or want more tax-advantaged retirement options.
• First, you need to enter the Non-Deductible Contribution made to your Traditional IRA.
• If it’s $6,000, you entered it into Turbotax incorrectly and need to start over.

Reporting the Backdoor Roth IRA properly on Turbotax is unfortunately even more complicated than filling out Form 8606 by hand. The key to doing it right is to recognize that you report the conversion step in the Income section but your report the contribution step in the Deductions and Credits section. Since you generally do the income section first, you report the conversion before you report the contribution, even though you actually did the contribution before the conversion. At the end, you want to look at the Form(s) 8606 that Turbotax generates, just like you would check up on one filled out by an accountant. The pro-rata rule stands as the most critical oversight during a backdoor Roth conversion. This IRS rule makes it impossible to selectively convert only your non-deductible contributions if you have existing pre-tax funds in any traditional IRA, SEP IRA, or SIMPLE IRA.

Be sure that you have taken into account the non-deductible contribution to your Traditional IRA that was later distributed and converted to the Roth IRA. Provident CPAs PLC offers a holistic approach to proactive tax planning and business growth. If this money grows at an average of 7% annually, after 20 years it becomes $139,135—completely tax-free in retirement.

You’ll get the same question for your spouse if any. Scroll down to the Retirement Plans and Social Security section and click on the start button next to IRA, 401(k), Pension Plans (1099-R) line.