Cut up-Yr Backdoor Roth IRA in FreeTaxUSA, Yr 2

[Updated on January 30, 2025 with screenshots from FreeTaxUSA for the 2024 tax year.]

The earlier put up Cut up-Yr Backdoor Roth IRA in FreeTaxUSA, Yr 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 put up handles the conversion half in FreeTaxUSA. In the event you use TurboTax or H&R Block tax software program, see:

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

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

It’s best to’ve already reported the contribution half in your 2023 tax return by following Cut up-Yr Backdoor Roth IRA in FreeTaxUSA, Yr 1 final 12 months. The IRA custodian despatched you a 1099-R type for the conversion in 2024. This put up reveals you easy methods to put it into FreeTaxUSA.

Right here’s the second instance state of affairs:

You contributed $6,500 to a Roth IRA for 2023 in 2023. You realized that your earnings was too excessive whenever 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 whenever you transformed it to Roth in 2024. You obtained two 1099-R varieties, one for $6,600 and one other for $6,700.

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

In the event you contributed for 2024 in 2025 or when you recharacterized a 2024 contribution in 2025, you’re nonetheless in 12 months 1 of this journey. Please comply with Cut up-Yr Backdoor Roth IRA in FreeTaxUSA, Yr 1.

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

In the event you’re married and each you and your partner did the identical factor, it’s best to comply with the steps beneath for each your self and your partner.

1099-R for Recharacterization

This part solely applies to the second instance state of affairs. In the event you contributed on to a Conventional IRA for 2023 in 2024 and didn’t recharacterize (the primary instance state of affairs), please skip this part and leap 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)” beneath 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 whenever 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’s 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 earnings on the 1099-R is appropriate. Code “R” in Field 7 can be appropriate. Though you didn’t embody 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 when you reported the recharacterization another way whenever you adopted Cut up-Yr Backdoor Roth IRA in FreeTaxUSA, Yr 1 final 12 months. You might have to amend final 12 months’s return provided that you didn’t report the recharacterization final 12 months in any respect.

You’re achieved 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 when you’re beneath age 59-1/2 or a code “7” when you’re 59-1/2 or older.

It’s additionally a daily 1099-R.

Field 1 reveals the quantity transformed to Roth. In the event 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 consists of 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 certain 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 after we end all the things.

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’re achieved with this 1099-R for the conversion. Repeat if in case you have one other 1099-R. In the event you’re married and each of you transformed to Roth, take note of whose 1099-R it’s whenever you enter the second. You’ll have issues when you assign each 1099-R varieties to the identical individual 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 simply did final 12 months appropriately). In the event you didn’t have a Kind 8606 final 12 months since you didn’t do it appropriately, 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 entire foundation is $6,500 in our instance.

The second field ought to be zero whenever you emptied all of your Conventional IRAs after changing them to Roth and also you don’t have any SEP or SIMPLE IRAs. In the event you had a number of {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 whenever you made your 2024 contribution in 2024.

We didn’t take any catastrophe distribution.

Now proceed with all different earnings gadgets till you’re achieved with earnings.

Clear Backdoor Roth On High

In the event 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 beneath 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. Go away 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 when 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. Affirm and proceed.

It tells us we don’t get a deduction as a result of our earnings is just too excessive. In the event you see a deduction right here it means the software program thinks your earnings qualifies for a deduction, which can or will not be appropriate. Please see the Troubleshooting part.

Taxable Earnings

You’re achieved with the 1099-R varieties. Let’s take 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 could be zero when you didn’t have any earnings.

Kind 8606

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

Troubleshooting

In the event you adopted the steps and you aren’t getting the anticipated outcomes, right here are some things to verify.

Conversion Is Taxed

In the event you don’t have a retirement plan at work, you’ve got a better earnings restrict to take a deduction in your Conventional IRA contribution. When you have a retirement plan at work however your earnings is low sufficient, you’re additionally eligible for a deduction in your Conventional IRA contribution. FreeTaxUSA offers you the deduction if it sees that your earnings qualifies. It doesn’t provide the selection of constructing it non-deductible.

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.

The taxable Roth IRA conversion and the deduction to your Conventional IRA contribution offset one another to create a wash. That is regular and it doesn’t trigger any issues whenever you certainly don’t have a retirement plan at work or when your earnings is sufficiently low.

In the event you even have a retirement plan at work, possibly the software program didn’t see it. Whether or not you’ve got a retirement plan at work is marked by the “Retirement plan” field in Field 13 of your W-2.

Possibly you forgot the verify it whenever you entered the W-2. Double-check the “Retirement plan” field in Field 13 of your (and your partner’s) W-2 entries in FreeTaxUSA to ensure they match the W-2.

Self vs Partner

In case you are married, ensure you don’t have the 1099-R and the IRA contribution combined up between your self and your partner. In the event you inadvertently assigned two 1099-Rs to at least one individual 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. In the event 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.