Most fund companies, including Vanguard, don’t close the account just because there is nothing in it. Done properly, there is NO tax on a Backdoor Roth IRA conversion. A Mega Backdoor Roth IRA is completely different from a regular Backdoor Roth IRA. Despite its name, you actually do a Mega Backdoor Roth IRA with a 401(k), not an IRA. It requires a 401(k) that accepts both after-tax (not Roth) employee contributions and allows for either in-service withdrawals (and thus conversions to a Roth IRA) or, more commonly, in-plan conversions. Using the Mega Backdoor Roth IRA process, one could put as much as $69,000 ($76,500 if 50+) [2024] per year into a Roth 401(k) (or possibly a Roth IRA in addition to your usual $7,000-$8.000 contribution).
- Low earner is defined as a Modified Adjusted Gross Income (MAGI) under a phaseout range in 2024 of $146,000-$161,000 ($230,000-$240,000 Married Filing Jointly).
- If you have self-employment income, you will need to use a solo 401(k) instead of a SEP-IRA to shelter that income from taxes.
- First, you, as a high earner, get no IRA deduction despite contributing $6,000-$12,000 to IRAs for the year.
And yes, it doesn’t change anything using the 7 code for box 7, to reflect our actual 1099-Rs. But is there any other reason to look into whether that’s actually correct? TurboTax seems convinced that it shouldn’t be a 7.
The third income line on the form is line 11b. This is your “Taxable Income.” This is what your tax bill is actually calculated from. It is basically your total income minus all of your deductions. These are deductions such as self-employment tax, self-employed retirement plans, self-employed health insurance premiums, HSA contributions, student loan interest, alimony, tuition, and any IRA deductions. If it comes out after your AGI is calculated, it is a below-the-line deduction.
If you don’t do it right, your numbers will probably not look right, with things like penalty charges for excess contributions showing up when they shouldn’t. In 2024, you are allowed to contribute $7,000 ($8,000 if 50+) per year for you and $7,000 ($8,000 if 50+) for your spouse. This includes all contributions to traditional and Roth IRAs. Rollovers/transfers do not count toward the annual contribution limit. Below are the MAGI limits for direct Roth IRA contributions [2024].
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Code 2 would normally have been used due to your age, but the custodian would have also had to know that the distribution was going to be a Roth IRA conversion. But this year TurboTax 2022(Desktop/Windows) has different set of interview questions and I’m having trouble following the guide. If you have a question about the Backdoor Roth IRA and not Turbotax specifically, you should FIRST read this very in-depth Backdoor Roth IRA Tutorial before asking your question in the comments below. I promise you there is a 99% chance your question is answered there. If you contributed too much to an IRA in the past, here’s where you report that.
I am leaving my employer. Should I roll my 401(k) or 403(b) into a traditional IRA? If not, what should I do with it?
The conversion step may take place at any time. It can take place the next day or even the same day as the contribution. I don’t recommend it, but you can wait months, years, or even decades between the contribution and the conversion step.
If you don’t already have a Roth IRA there, you’ll need to open one. This can be done in a minute or two online at Vanguard, and it is essentially the same process as opening the traditional IRA. I do this the very next day after I make the contribution.
Do You Pay Taxes Twice on a Backdoor Roth IRA?
You actually can do this for an extra six months after your tax filing date, but you will have to refile your return. Any earnings that the account had in between the contribution and the recharacterization just go over with https://turbo-tax.org/ the contribution. Bear in mind that starting in 2018, you can no longer do recharacterizations of Roth CONVERSIONS (not contributions). This eliminated the “Roth IRA Conversion Horserace” technique for tax reduction.
Also the California Refund bumped due to the value basis I entered, which I am not supposed to receive I guess. Perhaps you’d like to be saving for retirement backdoor roth turbotax in a Roth account, but you earn too much to contribute directly to a Roth IRA. And maybe you don’t have access to a Roth 401(k) plan at work.
How to Do a Backdoor Roth IRA
But after seeing the response from 2020hindsight, I went back and followed the original instructions from TurboTaxForrest. That worked, but it took a while to find a problem which was on the page “Tell us the Value of Your Traditional IRA”. All three values on that page have to be zero.
Married physicians should be using a personal and a spousal Roth IRA, and you will usually need to fund both indirectly (i.e., through the Backdoor). This provides an additional $7,000 each ($8,000 for each spouse that is 50+) of tax-protected and (in most states) asset-protected space per tax year, and it allows for more tax diversification in retirement. Tax diversification allows you to determine your own tax rate as a retiree by deciding how much to take from tax-deferred (traditional) accounts and how much from tax-free (Roth) accounts.
Explore Roth IRA conversions
Since no conversion step was done during the calendar year 2020, you only have to fill out lines 1-3 and 14. The tax preparer should NOT be filing Form 5439. If you did Steps 1-5 right, this form probably doesn’t belong in your tax return. The fix for this is going to vary by the individual, but the easiest fix is to simply convert the entire IRA to a Roth IRA now, so you end up getting all your post-tax money into that Roth IRA. Another possible fix is to figure out a way to separate your basis in that IRA, roll the tax-deferred money into a 401(k), and then convert the basis left behind in the IRA. Part of this total was 2021 contributions made in early 2022 ($6K and $7K) and another $6K made in 2022 for 2022.