Cut up-12 months Backdoor Roth IRA in FreeTaxUSA, 12 months 2

(Up to date on January 30, 2025 with screenshots from FreeTaxUSA for the 2024 tax 12 months.)

The earlier publish Cut up-12 months Backdoor Roth IRA in FreeTaxUSA, 12 months 1 handled contributing to a Conventional IRA for the earlier 12 months and recharacterizing a earlier 12 months’s Roth IRA contribution as a Conventional IRA contribution. This publish handles the conversion half in FreeTaxUSA. When you use TurboTax or H&R Block tax software program, see:

We cowl two instance eventualities on this publish. Right here’s the primary:

You contributed $6,500 to a Conventional IRA for 2023 in 2024. The worth elevated to $6,700 while you transformed it to Roth in 2024. You acquired a 1099-R type itemizing this $6,700 Roth conversion.

You need to’ve already reported the contribution half in your 2023 tax return by following Cut up-12 months Backdoor Roth IRA in FreeTaxUSA, 12 months 1 final 12 months. The IRA custodian despatched you a 1099-R type for the conversion in 2024. This publish reveals you how one can put it into FreeTaxUSA.

Right here’s the second instance situation:

You contributed $6,500 to a Roth IRA for 2023 in 2023. You realized that your revenue was too excessive while you did your 2023 taxes in 2024. You recharacterized the Roth contribution for 2023 as a Conventional contribution earlier than April 15, 2024. The IRA custodian moved $6,600 out of your Roth IRA to your Conventional IRA as a result of your unique $6,500 contribution had some earnings. The worth elevated once more to $6,700 while you transformed it to Roth in 2024. You acquired two 1099-R varieties, one for $6,600 and one other for $6,700.

You need to’ve already reported the recharacterized contribution in your 2023 tax return by following Cut up-12 months Backdoor Roth IRA in FreeTaxUSA, 1st 12 months final 12 months. The IRA custodian despatched you two 1099-R varieties, one for the recharacterization, and the opposite for the conversion. This publish reveals you how one can put each of them into FreeTaxUSA.

When you contributed for 2024 in 2025 or should you recharacterized a 2024 contribution in 2025, you’re nonetheless in 12 months 1 of this journey. Please observe Cut up-12 months Backdoor Roth IRA in FreeTaxUSA, 12 months 1.

If neither of those instance eventualities suits you, please seek the advice of our information for a standard “clear” backdoor Roth:  Report Backdoor Roth In FreeTaxUSA (Up to date).

When you’re married and each you and your partner did the identical factor, it is best to observe the steps beneath for each your self and your partner.

1099-R for Recharacterization

This part solely applies to the second instance situation. When you contributed on to a Conventional IRA for 2023 in 2024 and didn’t recharacterize (the primary instance situation), please skip this part and soar over to the conversion part.

We deal with the 1099-R type for recharacterization first. This 1099-R type has a code “R” in Field 7.

Discover “Retirement Earnings (1099-R)” below the Earnings menu.

Click on on the “Add a 1099-R” button.

It’s only a common 1099-R.

Enter the 1099-R for the recharacterization precisely as you’ve got it. Field 1 reveals the quantity transferred from the Roth IRA to the Conventional IRA while you recharacterized your 2023 contribution in 2024. Field 2a reveals that the recharacterization isn’t taxable. Field 2b “taxable quantity not decided” isn’t checked. The code in Field 7 is “R.” The “IRA / SEP / SIMPLE” field isn’t checked.

Your 1099-R reveals 2024 however FreeTaxUSA says it is best to’ve reported it in your 2023 tax return. The issue is you didn’t have it again then. You couldn’t have reported one thing you didn’t have. Choose the proper 12 months and proceed anyway.

The recharacterization wasn’t a rollover.

FreeTaxUSA reveals some alerts. The zero taxable revenue on the 1099-R is right. Code “R” in Field 7 can also be right. Though you didn’t embrace this 1099-R final 12 months since you didn’t have it at the moment, you don’t have to amend final 12 months’s tax return should you reported the recharacterization another way while you adopted Cut up-12 months Backdoor Roth IRA in FreeTaxUSA, 12 months 1 final 12 months. It’s possible you’ll have to amend final 12 months’s return provided that you didn’t report the recharacterization final 12 months in any respect.

You’re completed with the 1099-R type for the recharacterization. Click on on the “Add a 1099-R” button so as to add the opposite 1099-R for the conversion.

1099-R for Conversion

The 1099-R for the conversion has a code “2” in Field 7 should you’re below age 59-1/2 or a code “7” should you’re 59-1/2 or older.

It’s additionally a daily 1099-R.

Field 1 reveals the quantity transformed to Roth. When you contributed to a Conventional IRA for 2024 in 2024 and transformed in 2024 (a “clear” backdoor Roth) on high of changing the 2023 contribution in 2024, the quantity on the 1099-R contains two years’ value of contributions. 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.” Be sure that to decide on the proper code in Field 7 to match your 1099-R. The “IRA / SEP / SIMPLE” field is checked.

Your refund quantity drops after you enter the 1099-R. Don’t panic. It’s regular and non permanent. The refund quantity will come up once we end every little thing.

It’s not an inherited IRA.

It’s a Roth conversion. 100% of the quantity on the 1099-R was transformed from a Conventional IRA to a Roth IRA.

You might be completed with this 1099-R for the conversion. Repeat if in case you have one other 1099-R. When you’re married and each of you transformed to Roth, take note of whose 1099-R it’s while you enter the second. You’ll have issues should you assign each 1099-R varieties to the identical particular person after they belong to every partner. Click on on “Proceed” when you’ve got entered all of the 1099-R varieties.

Reply “Sure” right here since you had a Conventional IRA contribution from final 12 months.

Get the worth for the primary field from final 12 months’s Kind 8606 Line 14 (assuming that you just did final 12 months accurately). When you didn’t have a Kind 8606 final 12 months since you didn’t do it accurately, your foundation is the quantity of your 2023 Conventional IRA contribution minus any deduction you took on final 12 months’s Schedule 1 Line 20. The whole foundation is $6,500 in our instance.

The second field must be zero while you emptied all of your Conventional IRAs after changing them to Roth and also you don’t have any SEP or SIMPLE IRAs. When you had just a few {dollars} of earnings posted within the Conventional IRA after you transformed and also you left them within the account, get the worth out of your year-end assertion and put it within the second field. The software program will apply the pro-rata rule.

The third field also needs to be zero while you made your 2024 contribution in 2024.

We didn’t take any catastrophe distribution.

Now proceed with all different revenue gadgets till you might be completed with revenue.

Clear Backdoor Roth On High

When you did a “clear” backdoor Roth on high of changing the 2023 contribution in 2024 (contributed to a Conventional IRA for 2024 in 2024 and transformed in 2024), the conversion a part of the clear backdoor Roth is already included within the 1099-R type we simply accomplished. Now we do the contribution half.

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

Reply “Sure” to the primary query. An extra contribution means contributing greater than you’re allowed to contribute. We didn’t have that.

Enter the quantity you contributed to the Conventional IRA for 2024 within the first field. Depart the reply to “Did you turn or recharacterize” at No. We transformed. We didn’t change or recharacterize. We didn’t repay any distribution both.

Your refund quantity goes up once more after you enter the contribution.

We didn’t contribute to a SEP, solo 401k, or SIMPLE plan. Reply Sure should you did.

“Withdraw” means pulling cash out of a Conventional IRA again to your checking account. Changing to Roth just isn’t a withdrawal. Reply “No” right here.

FreeTaxUSA reveals the identical web page we noticed earlier than within the conversion part. Verify and proceed.

You see this display screen provided that your revenue falls beneath the revenue restrict that permits a deduction to your Conventional IRA contribution. You don’t see this in case your revenue is above the revenue restrict. Answering “Sure” will make your contribution deductible however it’ll additionally make your conversion taxable. Though it really works out to be a wash in the long run, it’s much less complicated should you reply “No” right here and make all the quantity that could possibly be deducted nondeductible.

It tells us we don’t get a deduction as a result of our revenue is simply too excessive or as a result of we selected to make our contribution nondeductible. That is as anticipated.

Taxable Earnings

You’re completed with the 1099-R varieties. Let’s have a look at how they present up in your tax return. Click on on the three dots on the highest proper above the IRA Deduction Abstract after which click on on “Preview Return.”

Search for Strains 4a and 4b in your Kind 1040.

Line 4a reveals the quantity in your 1099-R for the Roth conversion. Line 4b reveals the taxable quantity, which is the earnings between the time you contributed to your Conventional IRA and the time you transformed it to Roth. The taxable quantity on Line 4b can be zero should you didn’t have any earnings.

Kind 8606

Go towards the tip of the pop-up to seek out Kind 8606. It reveals these for our instance:

Troubleshooting

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

The Whole Conversion Is Taxed

When you don’t have a retirement plan at work, you’ve got the next revenue restrict to take a deduction in your Conventional IRA contribution. When you’ve got a retirement plan at work however your revenue is low sufficient, you might be additionally eligible for a deduction in your Conventional IRA contribution. FreeTaxUSA offers you the choice to take a deduction if it sees that your revenue qualifies.

A part of your conversion could possibly be taxed since you took a deduction on the Conventional IRA contribution final 12 months or this 12 months. You see whether or not you took a deduction by taking a look at Schedule 1 Line 20 on final 12 months’s and this 12 months’s tax returns.

You may’t change what you probably did final 12 months however you may nonetheless decline the deduction this 12 months by answering “No” on the “Do you need to take your IRA deduction?” web page. Declining the deduction lowers the taxable quantity in your Roth conversion.

Self vs Partner

If you’re 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 an alternative of 1 for you and one to 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 can be taxed on one 1099-R.