Did You Forget Your Backdoor Roth in 2023?

We’re now into Calendar Year 2024, and perhaps you just realized that you forgot to make your backdoor Roth contribution for 2023 – is there anything you can do?

The good news is, yes!

Even though December 31st has passed, taxpayers and their spouses have until April 15th, 2024 to contribute to their IRA and classify this contribution as a prior year IRA contribution (2023). This contribution will need to be reported on IRS Form 8606 (form instructions here) to notify the IRS that a non-deductible IRA contribution occurred in the tax year and to track your non-deductible basis with the IRS to make sure your after-tax contribution is not taxed when you convert to a Roth IRA. The taxpayer(s) can then convert the non-deductible IRA into a Roth IRA in 2024 and report this conversion on their 2024 income tax return. For efficiency, the taxpayer(s) could even make their 2024 non-deductible IRA contribution and convert both the 2023 and 2024 contributions at the same time to consolidate the conversion process. The reporting requirements for these transactions can become fairly complicated, so please consult your tax advisor regarding the preparation and filing of these transactions.

Although this strategy has existed for some time, the IRS has not provided formal guidance on whether this violates the step transaction rule. While the IRS does not consider backdoor Roths tax evasion, it could be considered tax avoidance and if regulations outlawing backdoor Roths are passed, you could be subject to a penalty for overfunding your Roth IRA. The lack of guidance from the IRS means there could potentially be some risk involved with these transactions, so please consult your tax advisor.

At Krilogy Tax, we seek to maximize the effectiveness of your tax strategy; we know that life can sometimes get in the way of your tax planning, but our expertise can get you back on track.  Please reach out to your Krilogy team with any questions you may have.

Krilogy®does not provide tax and legal advice. Krilogy®is affiliated with Krilogy Tax Services, LLC. Krilogy®Tax Services provides tax planning and preparation services for an additional cost to Krilogy®clients. You should consult your attorney or qualified tax advisor regarding your situation.