Converted earnings on backdoor Roth conversion not being taxed

Tummy912
Tummy912 Member Posts: 1 Newcomer
in Filing my taxes

Contributed $6500 to a Roth IRA in 2023. As I was filing in calendar year 2024, I realized I was over the income limit. Recharacterized the 2023 contributions in calendar year 2024, and performed a backdoor conversion. $7082 was recharacterized, and $7204 was converted from the traditional to the Roth IRA. I expected to pay taxes on the difference ($123) in tax year 2024, but it is not showing up on line 18.

2023 Tax Return

  • Form 8606: Lines 1,3, and 14 show 6,500

1099-R for Traditional to Roth IRA received in 2024:

  • Distribution: 7,203.85
  • Box 2a: 7,203.85
  • Box 2b checked
  • Code 2

2024 Tax Return

  • Form 8606
    • Line 1: 7,000
    • Line 2: 6,500
    • Lines 3, 5: 13,500
    • Lines 8, 9, 11, 13: 7,204
    • Line 14: 6,296
    • (Part 2) Line 16 and 17: 7,204

I performed another recharacterization and conversion in calendar year 2025 for 2024's contribution. Can anyone help explain why the software is calculating that I don't have to pay any taxes on the $123 earnings on the conversion? thx

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Answers

  • CoryF
    CoryF FreeTaxUSA Agent Posts: 198

    Thank you for providing the timeline and Form 8606 numbers including lines.

    The bottom line is you had more basis in your Traditional IRA then what was used to convert to Roth in 2024. Your lines 3, 5 totaled 13,500 and you only converted $7,204. The line 14 is your new basis and so the recharacterized Roth contributions to Traditional IRA was converted to Roth without the need to tax the earnings realized at the time of conversion.

    There may come a time when the traditional IRA basis runs out and a part of a future conversion will become taxable at that time.

    We suggest that you contact our support team for more direct assistance with this situation.

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