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I funded a traditional IRA and then converted it to Roth IRA via Roth back door conversion last year. What do I have to do for taxes this year?
AI accountant’s answer:
When you perform a backdoor Roth IRA conversion, you'll need to report this on your tax return. Here's what you need to do:
1. Report the Traditional IRA contribution: You'll receive a Form 5498 from your IRA custodian showing the contribution to your Traditional IRA. Even though you don't take the deduction on your tax return, you must report this IRA contribution on Form 1040, Schedule 1, line 20, "IRA Deduction." Enter zero (or the portion you're not deducting) in this line, which indicates you made a nondeductible contribution.
2. File Form 8606: To document the nondeductible Traditional IRA contribution and the subsequent Roth conversion properly, you need to file Form 8606, "Nondeductible IRAs," with your tax return. On Part I of Form 8606, you'll provide information about the nondeductible contribution. On Part II of the form, you'll report the Roth conversion details.
3. Check for potential taxes owed: If your Traditional IRA held only nondeductible contributions and you converted the entire balance, there shouldn't be any taxable income related to the Roth conversion. However, if the account had earnings or deductible contributions and their respective earnings, you'll need to pay taxes on the taxable portion of the conversion.
Remember to keep records of your IRA contributions and conversions for future reference, as it's essential to track your basis in the Traditional IRA and Roth IRA.
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