How to File Your Form 8606 When Making Backdoor Roth IRA Contributions

If you’ve been confused when filing your taxes when it’s time to handle your backdoor Roth contribution, you’re not alone. The tricky form 8606 can cause headaches and frustration when preparing your taxes.  

This method allows individuals whose income exceeds the Roth IRA contribution limits to still take advantage of its tax benefits. 

Who Needs a Backdoor Roth IRA?

For the 2024 tax year, the IRS limits direct Roth IRA contributions for individuals with an adjusted gross income (AGI) over $161,000 (single) or $240,000 (married filing jointly). If you exceed these limits, the backdoor method is an alternative way to contribute to your Roth IRA. 

How Does It Work?

1. Make a Nondeductible Contribution – First, contribute to a Traditional IRA, but do not deduct it on your taxes. 

1. Convert to a Roth IRA – Soon after, transfer the Traditional IRA funds into a Roth IRA. 

1. File IRS Form 8606 – This step ensures the IRS knows the conversion was tax-free. 

Key Considerations 

• The strategy works best when there are no pre-existing Traditional IRA balances, as the IRS applies a pro-rata rule that could lead to unexpected taxes. 

• Timing is crucial—waiting too long between the contribution and conversion can complicate the process. 

• Proper tax documentation, including Form 8606, is necessary to avoid IRS scrutiny. 

For those unfamiliar with the process, we walk you though how filing an 8606 in TurboTax might look in the video above. By following these steps, high-income earners can still benefit from tax-free growth and withdrawals in retirement.

Takeaways 

• Backdoor Roth IRA contributions are beneficial for high income earners. 

• Roth IRAs allow for tax-free growth and withdrawals in retirement. 

• Proper tax reporting is crucial to avoid double taxation on conversions. 

• TurboTax can be used to report backdoor Roth IRA contributions effectively. 

• Form 8606 is necessary for non-deductible IRA contributions. 

• Missing prior year contributions can complicate the reporting process. 

• You can still make contributions for the previous tax year until April 15th. 

• Having zero balance in a traditional IRA is essential for a clean backdoor Roth process. 

• Consulting a tax professional can help navigate complex situations. 

• Review your tax return carefully to ensure accurate reporting. 

If you have questions about the form 8086, or tax preparation questions in general, please don’t hesitate to reach out to us today.