Backdoor Roth IRA: Avoiding Tax Return Reporting Mistakes
Hello,
Roth IRA Contribution Reminder – Recording it Correctly on your Tax Return
April 15th is the deadline to contribute to your IRA for 2024.
In 2024, if your income was under the income limits below you can do a Direct contribution to a Roth IRA. No tax filing required.
Limits: Single: $146,000 or less Married: $230,000 or less
If it was over, you need to do a contribution to a Traditional IRA and convert it to a Roth IRA. It’s also important you have $0 in a Traditional IRA or SEP IRA before doing this in order for it to be a non-taxable event.
Once you complete this process, it will generate a tax form 1099-R. If not filed correctly, the IRS will think you took a DISTRIBUTION from a Traditional IRA and you will be taxed.
If filed appropriately, the IRS will not tax you at all. Zero. No taxes owed.
We reviewed tax returns from the prior 3 years for a client this past month who was having their taxes filed by one of the popular tax filing services and all 3 years were done incorrectly, costing the client over $12,000 in taxes.
We have been implementing a new Tax software that has the ability to efficiently catch things like this.
On the topic of taxes, I broke a promise I made to myself nearly 12 years ago. When I graduated college, I was glad to be done with exams. Come to find out I chose a career where 3 exams were required to get my licenses. After passing those exams, I swore I was done with exams for good.
Well, here I am 12 years later breaking that promise. I am studying for a new designation: TPCP - Tax Planning Certified Professional.
Since starting the new firm almost 1 year ago I have felt reinvigorated. I am more excited than ever to do what I do and want to always have a spirit of learning as much as possible to bring more value to clients.
Other tax documents
If you did the Traditional to Roth IRA in 2024, the 1099-R forms should have been generated already. If you were with me at the prior firm and did your Roth IRA contribution in January – March 2024, you should have received a form 1099-R from the prior firm. If you did it after March 2024, you should receive it from Schwab.
If you have a non-qualified account (non-retirement account) or what I simply call a Brokerage account you will receive a 1099 from Schwab between now and Mid-March. Also, if you had a Brokerage account with me at the prior firm you will also receive a 1099 from them for this account. You will need to report both.
If you are uncertain always feel free to contact me.
As always, I welcome any questions or comments. I sincerely am grateful to those who allow me to serve them.
Historical article · Originally published February 2025. Market data and tax rules reflect the original publication date. Past performance is not a guarantee of future results. Editorial and compliance review pending.