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In 2020, I deposited $7,000 (after-tax) in my Traditional IRA (Vanguard) account and then converted them into Roth IRA. One mistake I made was that for my age, the limit for backdoor conversion was $6,000 but I accidentally converted all of $7,000.

I have a couple of questions.

  1. I received 1099R from Vanguard. Surprisingly, all of $7,000 was reported as Texable amount (Box 2a). How can I notify that I already paid a tax on $7,000 and $6,000 should be considered as backdoor conversion? Should I submit 8606? Or, should I contact Vanguard to amend 1099R?

  2. For $1,000 which I accidentally converted beyond $6,000 limit, I guess it would be considered as early withdrawal. In that case, should I still pay a tax? Again, this was after-tax.

My CPA has no idea of how to handle this situation. I am trying to find an answer myself.

Key information from the comments:

  • Info on the 1099-R. Box 1 and Box2a has $7,000.09. Box 7(Distribution code) is 02. Box 2b (Taxable amount not determined and Total distribution) is checked. IRA/SEP/SIMPLE box is checked. Other than them, the others are empty.

  • I just checked my vanguard account. For 2019 tax year, there is indeed form 5498. It says $1,000 contribution. It was non-deductible and I didn't file Form 8606

  • One thing I found is that I made the non-deductible contributions in the following dates in 2020 -- $1,000 (Jan 16) and $6,000 (Oct 28~Nov 20) I immediately did a conversion to Roth IRA after each contribution.

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  • Did you withdraw the excess 2020 contribution to the Traditional IRA account? Do you have any other Traditional IRA accounts, whether with Vanguard or with some custodian? – Dilip Sarwate Apr 4 at 21:39
  • @DilipSarwate I converted all of $7000 to Roth IRA -- that is, the excess 2020 contribution was also moved to Roth IRA. I have only one traditional IRA. – DSKim Apr 4 at 21:43
  • Does your Traditional IRA with Vanguard have any other money in it, or was that $7000 the only money in it and so after the Roth conversion, now your Traditional IRA has a zero balance? – Dilip Sarwate Apr 4 at 22:32
  • $7,000 was the only money in. After conversion, the balance is 0. One thing I found is that I made the non-deductible contributions in the following dates in 2020 -- $1,000 (Jan 16) and $6,000 (Oct 28~Nov 20) I immediately did a conversion to Roth IRA after each contribution. – DSKim Apr 4 at 22:42
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    @DSKim: Can you verify that the $1000 was a 2019 contribution (e.g. look at your 2019 form 5498, which should have been received in mid-2020) and you did not exceed the $6000 contribution limit for 2019 and 2020 contributions? Also, did you deduct that $1000 of 2019 Traditional IRA contribution on your 2019 tax return? Or was it a non-deductible contribution? (in which case, did you file Form 8606 part 1 in your 2019 tax return?) – user102008 Apr 5 at 1:26
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One mistake I made was that for my age, the limit for backdoor conversion was $6,000 but I accidentally converted all of $7,000.

The $6,000 limit is for contributions. There is no limit for conversions.

Since the 1099-R only references a conversion of $7,000 that means that theee were no gains or losses.

Don't worry that the form 2a has a value of $7,000, that is because you are going a conversion.

The tax form you submitted in April(?) 2020 should have included the non-deductible contribution of $1,000. This years tax form should also include the $6,000 non-deductible contribution.

The 1099-R shows what happened to those funds. In the end you will not have to pay any additional taxes, nor will you be deducting any of this from your taxes.

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  • Thanks for the clarification. This is the first time of dealing with tax for ira backdoor. My CPA wasn't much knowledgable about backdoor, adding all of converted amount in the taxable income. I thought it wasn't right because they had been already taxed. Thanks to all commenters. I'm now clear about what to do. – DSKim Apr 5 at 18:54
  • I talked to my CPA. He says that he can submit the Form 8606 for $6,000.00 contributed in 2020 but that I should still pay a tax for $1,000. I still don't think that it's right because $1,000 was a non-deductible contribution. My only mistake was not to submit the form 8606 for $1,000 for the year 2019 tax filing. In that case, would there be any way of submitting the missed 8606 this year? – DSKim Apr 6 at 21:04
  • @DSKim: Yes. Just fill out a 2019 form 8606 now and mail it in. There should be $1000 of Traditional IRA basis from your 2019 form 8606 that would carry onto your 2020 form 8606. – user102008 Apr 7 at 7:05

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