Backdoor Roth issue

Submitted by Greg Martinez on Thu, 2023-04-27 20:00

I have a client who attempted to do a backdoor Roth. Their income is well into the 6 figures and they have a pension plan at work.

They contributed to a non-deductible IRA then rolled it over to a Roth the same day. The problem is that they received a 1099-R for the IRA distribution with a 2 in box 7 and the taxable amount in box 2a equal to the gross distribution in box 1. Is this correct? I’m not sure if they were supposed to get a 1099-R in this situation.

My concern is that they contributed to a deductible IRA instead of a non-deductible IRA. I’m not sure if that is a designation the IRA custodian is concerned with or just a tax designation.



Submitted by David Mertz on Thu, 2023-04-27 20:26

The Form 1099-R is correct.  A traditional IRA custodian has no knowledge of an individual’s basis in nondeductible traditional IRA contributions, so the custodian is required to report the same amount in box 2a as is in box 1 and mark box 2b Taxable amount not determined.  The actual taxable amount is determined on the individual’s Form 8606 filed with their tax return for the year of the distribution from the traditional IRA.  The nondeductible traditional IRA contribution itself is reported on the Form 8606 for the year for which the traditional IRA contribution was made (which could be the same year or the prior year).

Submitted by Alan - IRA critic on Thu, 2023-04-27 20:30

  • The 1099R is correct. Custodians are required to report the total distribution (conversion) in Box 2a as taxable. They have no idea how much basis a taxpayer’s IRA contains or if any current or past contributions were non deductible. Therefore, the Box 2a figure is just  provisional and can be overidden by Form 8606, which applies IRA basis to all distributions. 
  • In your example, the client was not eligible for a deduction and would report the non deductible contribution in Part I of Form 8606 for the year the contribution was made. Form 8606 also calculates the actual taxable and non taxable amount of the conversion or other distribution for the year of the conversion. 

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