IRA - Back Door Conversion, Tax Filling - 1040, 8606 and 1099R

Question

I contributed to Roth IRA Account in Jan-2016 for FY 2016 and again I contributed to Roth IRA account in Jan-2017 for FY-2017.

When I was ready to file my tax return for 2016 in Feb-2017 I came to know that I am ineligible to contribute to Roth IRA account so Re-Characterized my 2016 Roth IRA contribution to Traditional IRA account and did the Back door conversion to Roth IRA account again in sometime march-2017. And I filled my tax for 2016. This was after tax income and I didn't deduct contributions on my income taxes.

Later In Nov-2017 I realized that I am again going to be ineligible to contribute to Roth IRA account for FY 2017. So I Re-characterized that contribution to Traditional IRA and later converted to Roth IRA using Back door conversion.

So basically I performed two re-characterization and two back door conversion in FY-2017. How to file my tax return and 8606? I have received the two 1099 from Financial Institute Roth to Traditional IRA Conversion 1099-R. Another for Traditional to (Back Door) Roth IRA Conversion 1099-R

How do I enter this information correctly on 1040 and 8606 to let IRA know that I have done back door Roth IRA Conversion so I don't have to pay tax again in the future when I am ready for withdrawal.

Thanks for your help and Time! I really appreciate it.

Answer 1

As you said you have 2 recharacterizations and 2 conversions. However, even though the recharacterization of your 2016 contribution occured in 2017, it should have been reported on your 2016 taxes. If you didn't do that you may need to amend that return and file Form 8606 for a non-deductible traditional IRA contribution, though it shouldn't change your tax owed.

For the remaining 2017 recharacterization, your tax software should guide you, but generally you just act like you contributed to a traditional IRA originally. Again, recharacterizing between Roth and non-deductible traditional by itself should make no difference in the tax owed.

Conversions are reported on your taxes for the year they occur, so both will appear on your 2017 return. This site goes into detail about the backdoor Roth IRA, and shows an example Form 8606. Your Form 1040 should have the entire amount of the conversion on line 15a, but only the earnings on line 15b should be taxable.