Back Door ROTH Conversion
In 2021, my client did a “back door” ROTH conversion according to his investment advisor. The mutual fund issued a 1099-R reporting the gross distribution as taxable. How is IRS Form 8606 completed to reflect the conversion as non-taxable?
Permalink Submitted by Alan - IRA critic on Thu, 2022-07-07 19:32
Tax software will do it if the input is correct. First, the contribution that is converted must be reported as a non deductible contribution on line 1 of Part 1 of Form 8606. The rest of Part 1 calculates the non taxable portion of the amount converted, and that should be most of the converted amount. If there was a gain before the conversion was done the amount of gain will be taxable. Line 6 of the 8606 asks for the year end value of all non Roth IRAs since if there is more than one such IRA, all of them are treated as one combined IRA account. If the client has no other IRAs, made the contribution and then converted before any gains were generated, the conversion will be non taxable.