[Updated on January 30, 2025 with screenshots from FreeTaxUSA for the 2024 tax year.]
The earlier put up Break up-12 months Backdoor Roth IRA in FreeTaxUSA, 12 months 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. For those who 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 if you transformed it to Roth in 2024. You acquired a 1099-R type itemizing this $6,700 Roth conversion.
You need to’ve already reported the contribution half in your 2023 tax return by following Break up-12 months Backdoor Roth IRA in FreeTaxUSA, 12 months 1 final 12 months. The IRA custodian despatched you a 1099-R type for the conversion in 2024. This put up exhibits you how you can 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 if 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 if you transformed it to Roth in 2024. You acquired two 1099-R kinds, one for $6,600 and one other for $6,700.
You need to’ve already reported the recharacterized contribution in your 2023 tax return by following Break up-12 months Backdoor Roth IRA in FreeTaxUSA, 1st 12 months final 12 months. The IRA custodian despatched you two 1099-R kinds, one for the recharacterization, and the opposite for the conversion. This put up exhibits you how you can put each of them into FreeTaxUSA.
For those who contributed for 2024 in 2025 or in case you recharacterized a 2024 contribution in 2025, you’re nonetheless in 12 months 1 of this journey. Please comply with Break up-12 months Backdoor Roth IRA in FreeTaxUSA, 12 months 1.
If neither of those instance eventualities suits you, please seek the advice of our information for a standard “clear” backdoor Roth: The best way to Report Backdoor Roth In FreeTaxUSA (Up to date).
For those who’re married and each you and your partner did the identical factor, it is best to comply with the steps under for each your self and your partner.
1099-R for Recharacterization
This part solely applies to the second instance state of affairs. For those who 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 soar 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 Revenue (1099-R)” below the Revenue 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 gotten it. Field 1 exhibits the quantity transferred from the Roth IRA to the Conventional IRA if you recharacterized your 2023 contribution in 2024. Field 2a exhibits 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 exhibits 2024 however FreeTaxUSA says it is 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 exhibits 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 in case you reported the recharacterization another way if you adopted Break up-12 months Backdoor Roth IRA in FreeTaxUSA, 12 months 1 final 12 months. You could have to amend final 12 months’s return provided that you didn’t report the recharacterization final 12 months in any respect.
You’re completed 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 in case you’re below age 59-1/2 or a code “7” in case you’re 59-1/2 or older.
It’s additionally a daily 1099-R.
Field 1 exhibits the quantity transformed to Roth. For those who 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’ price 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.” Ensure 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 short-term. The refund quantity will come up once we end every part.
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 might be completed with this 1099-R for the conversion. Repeat if in case you have one other 1099-R. For those who’re married and each of you transformed to Roth, take note of whose 1099-R it’s if you enter the second. You’ll have issues in case you assign each 1099-R kinds to the identical particular person after they belong to every partner. Click on on “Proceed” when you’ve gotten entered all of the 1099-R kinds.
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 Type 8606 Line 14 (assuming that you simply did final 12 months appropriately). For those who didn’t have a Type 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 needs to be zero if you emptied all of your Conventional IRAs after changing them to Roth and also you don’t have any SEP or SIMPLE IRAs. For those who 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 must also be zero if you made your 2024 contribution in 2024.
We didn’t take any catastrophe distribution.
Now proceed with all different earnings objects till you might be completed with earnings.
Clear Backdoor Roth On High
For those who 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 below 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 swap 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 in case you did.
“Withdraw” means pulling cash out of a Conventional IRA again to your checking account. Changing to Roth shouldn’t be a withdrawal. Reply “No” right here.
FreeTaxUSA exhibits the identical web page we noticed earlier than within the conversion part. Affirm and proceed.
You see this display screen provided that your earnings falls under the earnings restrict that enables a deduction on your Conventional IRA contribution. You don’t see this in case your earnings is above the earnings restrict. Answering “Sure” will make your contribution deductible however it’s going to additionally make your conversion taxable. Though it really works out to be a wash in the long run, it’s much less complicated in case you reply “No” right here and make the complete quantity that may very well be deducted nondeductible.
It tells us we don’t get a deduction as a result of our earnings is just too excessive or as a result of we selected to make our contribution nondeductible. That is as anticipated.
Taxable Revenue
You’re completed with the 1099-R kinds. 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 Type 1040.
Line 4a exhibits the quantity in your 1099-R for the Roth conversion. Line 4b exhibits 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 in case you didn’t have any earnings.
Type 8606
Go towards the tip of the pop-up to seek out Type 8606. It exhibits these for our instance:
| Line # | Quantity |
|---|---|
| 1 | 7,000 (provided that you additionally did a “clear” backdoor Roth on high, in any other case clean.) |
| 2 | 6,500 |
| 3 | The sum of Line 1 and Line 2 |
| 5 | The identical as Line 3 |
| 8 | The quantity in your 1099-R with a code 2 or 7 |
| 13 | The identical as Line 3 |
| 14 | clean (or a small quantity in case your Conventional IRA had a small stability on the finish of 2024) |
| 16 | The identical as Line 8 |
| 17 | Line 3 minus Line 14 |
| 18 | The distinction between Line 16 and Line 17 |
Troubleshooting
For those who adopted the steps and you aren’t getting the anticipated outcomes, right here are some things to test.
The Complete Conversion Is Taxed
For those who don’t have a retirement plan at work, you’ve gotten 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 might be additionally eligible for a deduction in your Conventional IRA contribution. FreeTaxUSA provides you the choice to take a deduction if it sees that your earnings qualifies.
A part of your conversion may very well 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 Schedule 1 Line 20 on final 12 months’s and this 12 months’s tax returns.
You possibly can’t change what you probably did final 12 months however you may nonetheless decline the deduction this 12 months by answering “No” on the “Do you wish to take your IRA deduction?” web page. Declining the deduction lowers the taxable quantity in your Roth conversion.
Self vs Partner
In case you are married, ensure you don’t have the 1099-R and the IRA contribution blended up between your self and your partner. For those who inadvertently assigned two 1099-Rs to 1 particular person as a substitute of 1 for you and one on your partner, the second 1099-R won’t match up with a Conventional IRA contribution made by a partner. For those who 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.
Say No To Administration Charges
In case you are paying an advisor a proportion of your belongings, you might be paying 5-10x an excessive amount of. Learn to discover an unbiased advisor, pay for recommendation, and solely the recommendation.
