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2020 Backdoor Roth IRA Conversion in 2021 - Concern/Questions

Personal Finance & Money Asked by cmk2901 on October 4, 2021

In 2019, I did a backdoor Roth IRA conversion that went off without any problems (put $6000 into traditional IRA, converted to Roth IRA). In 2020, I was looking to do the same, but I hit a snag.

I made the 2020 contribution and conversion in the last couple weeks of the year, and due to holiday delays and such, the conversion step didn’t register on Vanguard until January. So, I have a contribution in 2020 and the conversion now in 2021.

So, I was wondering if anyone here has been in a similar situation or can advise on a few things that are somewhat unclear to me:

  1. For reporting, I was following a guide (https://thefinancebuff.com/how-to-report-backdoor-roth-in-turbotax.html). The guide indicates that I should report the traditional IRA contribution on my 2020 tax return, but wait until 2021 to report the conversion. Is that correct?

  2. Will I owe more in 2021 because of this situation? In Turbo Tax, entering the conversion greatly increases the "tax due" until you enter the contribution later on, which reverts the "tax due". But in this case, for 2021, it seems I’d enter the conversion step only (which increases tax due significantly) with no contribution step to counter that. Is there another form that you fill out to indicate "this conversion relates to a contribution made the previous year so it should not be taxed?".

  3. Does this in any way affect my ability to make a backdoor contribution in 2021? My intent was to contribute/convert for 2020, and then this year do another $6000 contribute/convert. Is that problematic b/c the previous conversion did not complete before 2021? Want to make sure I don’t over contribute if this situation already puts me at the 2021 max.

Any guidance or insight would be greatly appreciated! I’m definitely going to be more careful to avoid this situation in the future :P.

One Answer

This is very common and nothing to worry about.

  1. Correct, you report the non-deductible Traditional IRA contribution on Form 8606 in your 2020 tax return, then the conversion in your 2021 return.
  2. No more tax will be owed just because the conversion happens in a later year. Assuming no pro rata tax issues, taxes are always owed on how much is converted minus how much was contributed. Time is not a factor (although of course, the longer you wait, in all likelihood the more you will have to convert).
  3. This doesn't impact your 2021 backdoor Roth IRA contribution. You're still eligible to contribute to your Traditional IRA for 2021, and there are no limits on conversions.

Correct answer by Craig W on October 4, 2021

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