Break up-12 months Backdoor Roth IRA in FreeTaxUSA, 12 months 2

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

The earlier submit 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 submit handles the conversion half in FreeTaxUSA. For those who use TurboTax or H&R Block tax software program, see:

We cowl two instance situations on this submit. Right here’s the primary:

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

It’s best 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 kind for the conversion in 2024. This submit exhibits you the best way 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 revenue was too excessive while 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 while you transformed it to Roth in 2024. You acquired two 1099-R types, 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 Break up-12 months Backdoor Roth IRA in FreeTaxUSA, 1st 12 months final 12 months. The IRA custodian despatched you two 1099-R types, one for the recharacterization, and the opposite for the conversion. This submit exhibits you the best way to put each of them into FreeTaxUSA.

For those who contributed for 2024 in 2025 or for those who 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 situations suits you, please seek the advice of our information for a standard “clear” backdoor Roth: How you can Report Backdoor Roth In FreeTaxUSA (Up to date).

For those who’re married and each you and your partner did the identical factor, you need 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 kind for recharacterization first. This 1099-R kind has a code “R” in Field 7.

Discover “Retirement Revenue (1099-R)” beneath 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 it. Field 1 exhibits the quantity transferred from the Roth IRA to the Conventional IRA while 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 you need 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 revenue 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 must amend final 12 months’s tax return for those who reported the recharacterization another way while you adopted Break up-12 months Backdoor Roth IRA in FreeTaxUSA, 12 months 1 final 12 months. You could must 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 kind 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 for those who’re beneath age 59-1/2 or a code “7” for those who’re 59-1/2 or older.

It’s additionally an everyday 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 contains 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.” 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’re completed with this 1099-R for the conversion. Repeat when 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 while you enter the second. You’ll have issues for those who assign each 1099-R types to the identical individual after they belong to every partner. Click on on “Proceed” when you’ve entered all of the 1099-R types.

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). For those who 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 while 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 couple 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 while you made your 2024 contribution in 2024.

We didn’t take any catastrophe distribution.

Now proceed with all different revenue gadgets till you’re completed with revenue.

Clear Backdoor Roth On Prime

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 kind 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. Depart 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 for those who 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.

It tells us we don’t get a deduction as a result of our revenue is simply too excessive. For those who see a deduction right here it means the software program thinks your revenue qualifies for a deduction, which can or might not be appropriate. Please see the Troubleshooting part.

Taxable Revenue

You’re completed with the 1099-R types. 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 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 can be zero for those who didn’t have any earnings.

Kind 8606

Go towards the top of the pop-up to search out Kind 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 examine.

Conversion Is Taxed

For those who don’t have a retirement plan at work, you’ve a better revenue restrict to take a deduction in your Conventional IRA contribution. You probably have a retirement plan at work however your revenue 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 revenue qualifies. It doesn’t provide the selection of creating it non-deductible.

A part of your conversion might 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.

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

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

Perhaps you forgot the examine it while 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, be sure to 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 at least one individual as an alternative 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 may be taxed on one 1099-R.