In this video, I’m going to go over how to fill out IRS Form 8606 for a backdoor Roth IRA. You’ll need to fill out this form if you performed a backdoor Roth IRA in the previous tax year.
The Roth IRA is one of the best accounts to save for retirement because of its tax advantages. When you contribute money to a Roth IRA, you do so in an after-tax fashion, meaning that you are contributing dollars that you’ve already paid taxes on.
And then, when you invest this money, this money can grow tax-free and withdrawals are tax-free as well.
Of course, there are limits placed on this account because of its unique advantages, and there are two important limits to keep track of every single year, and these two limits are the Roth IRA contribution limit and the Roth IRA income limit.
The backdoor Roth IRA is a method to contribute to your Roth IRA regardless of your income limit.
We’ll fill out IRS Form 8606 assuming that we’ve contributed and Roth converted a maximum $6,000 contribution in the 2022 tax year in 2023 and that we do not have any funded Traditional, Rollover, SEP, or SIMPLE IRAs.
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Chapters:
00:00 Intro
00:39 Why Perform a Backdoor Roth IRA
03:58 IRS Form 8606 Assumptions
05:23 Filling Out IRS Form 8606
10:59 Outro
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Disclaimer: I am not a financial advisor, accountant, or lawyer, and as such, I do not provide financial, tax, or legal advice. This video, and any ideas presented in it, are opinions and are provided for entertainment purposes only. Please do your own research and consult your own financial, tax, or legal professional for specific advice.
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If you’re interested in a backdoor Roth IRA, you’ll need to file an IRS Form 8606. This form is required to report nondeductible contributions, conversion of traditional IRAs to Roth IRAs, and certain distributions from Roth IRAs.
Here are the steps to complete IRS Form 8606:
1. Start by entering your name, Social Security number, and tax year at the top of the form. Make sure this information matches your tax return exactly.
2. In Part I, report any contributions you made to a traditional IRA that were not deductible. This is important because these contributions have already been taxed, so they won’t be taxed again when you convert to a Roth IRA. Be sure to keep track of your nondeductible contributions on an ongoing basis to make this step easier.
3. In Part II, report any conversions you made from a traditional IRA to a Roth IRA. Use the information from Form 1099-R, which you should receive from your financial institution reporting the conversion. This amount is taxable, but you’ve already paid taxes on the nondeductible contributions in Part I. This part of the form will help you figure out how much of the conversion is taxable.
4. Next, calculate the taxable amount of your conversion. This is done by dividing the amount of your nondeductible contributions by the total value of your traditional IRAs before the conversion. The result is the percentage of your conversion that is not taxable.
5. In Part III, report any distributions you received from a Roth IRA that was funded with nondeductible contributions. This information is used to calculate any taxable portion of the distribution. If the distribution is entirely from nondeductible contributions, it’s not taxable.
6. Finally, calculate the amount of any additional tax you owe based on your nondeductible contributions and conversions. This is done using the tax tables on the back of the form.
7. Sign and date the form and attach it to your tax return.
Completing IRS Form 8606 can be complicated, so it’s important to keep accurate records of your contributions and conversions throughout the year. If you’re unsure whether a backdoor Roth IRA is right for you, consider consulting with a financial advisor. With careful planning and attention to the details, a backdoor Roth IRA can be a smart way to save for retirement.
Hi Stan. Great video. From my personal experience, doing a backdoor roth with Fidelity does not happen instantly. It has taken around 5 business days to process. During the 5 business days a small amount of interest accrues (e.g., $4) and the balance in the Traditional IRA is no longer zero. Any tips on completing Form 8606 in this situation?
Hey,
Thansk for putting this vidoe together. On the income limit aspect, can you specify if you are referring to the adjusted income or gross income? I see many videos on the subject and I have to see this distinction.
Many states program federal assistance programs often assume adjusted gross income.
Any clarification will be greatly appreciated.
Hi Stan, if I was late on this and made the full contribution to 2022 in feb-april of 2023 instead of before December 31 2022, would I have to change anything for the tax form? Also would I still be able to do the backdoor roth ira normally for 2023 (meaning I'd make the full contribution for 2023 before December 31 2024)?
This was some good info, I don’t know if there are any videos talking about exactly how to do it so this will be huge for however is doing the Backdoor!
Nice Stan!
Backdoor IRA's are super helpful for those who are over the earning caps, and having a concrete example on how to fill out this form is awesome, and is going to be very helpful for many. Talking about it is one thing, but showing an actual concrete example takes it to another level. Great work on this one Stan!
I was waiting for this one! This is very helpful. I have had actually requested for this information in one of your videos in the past :). Thank you Stan! Keep up the good work.
This video is gonna be super helpful!