Confused about paying taxes on Backdoor Roth IRA conversion? CPA saying contribution is taxable?
Title: Confused about paying taxes on Backdoor Roth IRA conversion? CPA saying contribution is taxable? 1 I'm seriously scratching my head here. I made contributions to my Backdoor Roth IRA for both this year and last year, but now my CPA is telling me that the entire converted amount to the Roth IRA is taxable income. I'm pretty sure I misunderstood something because I thought the whole advantage of a Backdoor Roth IRA was that you contribute post-tax dollars, do the conversion, and then get to withdraw it all tax-free later in retirement? I distinctly remember using money that I already paid income tax on for these contributions. First I put it in a traditional IRA (with no tax deduction) and then converted it to the Roth. So why would I be taxed again on the conversion? My CPA has the entire conversion amount listed as taxable income on my return, which is adding thousands to my tax bill. Am I completely misunderstanding how Backdoor Roth IRA contributions work? Or could my CPA be mistaken? I'm super stressed about this since my filing deadline is approaching fast.
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Nina Fitzgerald
3 Your understanding is correct, and your CPA appears to be making a mistake here. The Backdoor Roth IRA strategy works exactly as you described - you make a non-deductible contribution to a Traditional IRA (using money you've already paid taxes on) and then convert it to a Roth IRA. When you make a non-deductible Traditional IRA contribution, you should file Form 8606 to report it as non-deductible. This creates "basis" in your Traditional IRA. When you convert the Traditional IRA to a Roth, you should only be taxed on any earnings that occurred between the time you made the contribution and when you did the conversion (which is often minimal if done quickly), plus any pre-tax money in any of your Traditional IRAs. It sounds like your CPA might be missing the fact that these were non-deductible contributions and is treating the entire conversion as taxable. I'd recommend asking them specifically about Form 8606 and whether they accounted for the non-deductible basis.
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Nina Fitzgerald
•7 Thanks for explaining this! I'm now wondering if my CPA even knows I made non-deductible contributions. How do I check if Form 8606 was properly filed for my previous contributions? And what happens if I didn't file it in previous years but should have?
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Nina Fitzgerald
•3 You can check if Form 8606 was filed by looking at your previous tax returns. If you have copies, look for this specific form. If it wasn't filed when it should have been, you can file it late for previous years - there's only a small penalty ($50) for failing to file it on time, and sometimes the IRS even waives this. The important thing is to get it filed so you have documentation of your non-deductible contributions, establishing your basis. Without this form, the IRS has no record that you already paid tax on this money, which could be why your CPA is treating the conversion as fully taxable. Bring this up with your CPA immediately and ask them to help you get any missing Forms 8606 filed.
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Nina Fitzgerald
12 Just went through this exact situation last month. I used https://taxr.ai to analyze my previous tax returns and found I was missing Form 8606 for two years when I made non-deductible IRA contributions. The tool flagged this immediately and saved me from double taxation. Their document review system is amazingly thorough - it spotted the missing forms, explained what went wrong, and even estimated how much extra tax I would have paid if I hadn't fixed it. I was able to file the missing forms before submitting this year's return, and properly documented my basis in the Traditional IRA before conversion. The most valuable part was getting a detailed explanation of the Backdoor Roth rules that I could show my tax preparer. Definitely worth checking out if you're dealing with tricky retirement account situations.
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Nina Fitzgerald
•9 Does this actually work for past tax returns? I think I might have messed up my backdoor Roth reporting for the last 3 years. Can this tool help determine if I need to file amended returns?
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Nina Fitzgerald
•15 I'm skeptical about any service claiming to catch tax errors. Most of these tools just run basic checks. How does it handle the pro-rata rule if you have existing pre-tax IRA balances? That's where most CPAs mess up with backdoor Roths.
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Nina Fitzgerald
•12 Yes, it works great for past returns. You just upload your previous tax documents and it specifically looks for missing forms and inconsistencies. It flagged my missing 8606s immediately and explained the implications. The pro-rata rule analysis is actually one of its strengths. It identified that I had a SEP IRA with pre-tax money and warned me about partial taxation on my conversion due to the pro-rata rule. It even calculated the exact taxable percentage based on all my IRA balances. My CPA had completely missed this, so it definitely caught something that professionals sometimes overlook.
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Nina Fitzgerald
9 Following up after using taxr.ai - wow, this literally solved my problem! The system immediately identified that my CPA hadn't filed Form 8606 for either of my contributions. It showed me exactly where the error was happening and generated a report explaining the backdoor Roth process that I sent to my accountant. My CPA admitted the mistake (they were treating my non-deductible contributions as deductible and then taxing the full conversion). We're filing the correct forms now, and it's saving me over $4,000 in unnecessary taxes. The system even created draft 8606 forms for both years that helped my CPA prepare the correct documentation. Honestly wish I'd known about this before nearly paying double tax on my retirement savings.
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Nina Fitzgerald
18 If you're having trouble getting your CPA to understand or fix this issue, you might need to speak directly with an IRS agent who specializes in retirement accounts. I was in a similar situation last year and was getting nowhere with my tax preparer. I used https://claimyr.com to get through to the IRS after trying for weeks on my own. They got me connected to a real IRS agent in about 20 minutes when I had been getting disconnected or waiting on hold for hours before. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed exactly what others here are saying - that non-deductible contributions tracked on Form 8606 aren't taxed again when converted to a Roth IRA. They even sent me the specific IRS publications to share with my tax preparer to resolve the confusion.
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Nina Fitzgerald
•16 Wait, this service actually gets you through to a real IRS person? How does that even work? I've literally spent hours on hold with the IRS trying to get clarification on Roth conversion rules.
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Nina Fitzgerald
•15 This sounds like a scam. The IRS phone system is notoriously impossible to navigate. I doubt any service can magically get you through when millions of people can't get through each tax season.
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Nina Fitzgerald
•18 It uses a system that continuously redials and navigates the IRS phone tree until it gets through to an agent. When it makes the connection, it calls you and connects you directly to the agent. It's not magic - just technology that handles the frustrating part of calling the IRS. For retirement account questions specifically, getting through to a knowledgeable IRS agent made all the difference. The agent was able to confirm the proper handling of Form 8606 and backdoor Roth conversions, plus they sent me the exact sections of the tax code that applied to my situation which I forwarded to my tax preparer.
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Nina Fitzgerald
15 I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway out of desperation because my CPA was still insisting I owed taxes on my backdoor Roth conversion. The service actually worked exactly as described. It took about 40 minutes (not the 20 they advertise, but still impressive), and I was connected with an IRS agent who specialized in retirement account issues. The agent confirmed that non-deductible IRA contributions properly reported on Form 8606 establish basis that isn't taxed again during a Roth conversion. The agent even emailed me IRS Publication 590-A sections that specifically addressed backdoor Roth conversions. This was enough evidence to convince my CPA to fix my return. Saved me almost $3,200 in incorrect tax charges.
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Nina Fitzgerald
19 Be careful about the pro-rata rule! Everyone keeps saying your backdoor Roth conversion isn't taxable, but that's only completely true if you don't have any other pre-tax IRA money anywhere (Traditional, SEP, or SIMPLE IRAs). If you have other IRA accounts with pre-tax money, the conversion gets taxed proportionally. For example, if you have $95,000 in pre-tax IRA funds and do a $5,000 non-deductible contribution followed by a conversion, about 95% of your conversion would actually be taxable. The IRS looks at all your IRAs together when calculating this (called the pro-rata rule). Form 8606 handles this calculation. This trips up a lot of people and some tax preparers too.
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Nina Fitzgerald
•7 This is super important info - I had no idea! If you have existing Traditional IRA money, is there any way to still do a backdoor Roth without triggering this pro-rata rule? I've got about $30k in an old Traditional IRA.
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Nina Fitzgerald
•19 Yes, there's a workaround! If your employer's 401(k) plan accepts rollovers from IRAs, you can roll your existing pre-tax IRA funds into your 401(k) before doing the backdoor Roth. Since 401(k)s don't count in the pro-rata calculation, this effectively zeroes out your pre-tax IRA balance. This only works if your 401(k) plan allows for incoming rollovers from IRAs, so you'll need to check with your plan administrator. If this is possible, you could roll the $30k into your 401(k), then do a clean backdoor Roth conversion without pro-rata tax consequences. Timing matters though - you'd need to complete the rollover to the 401(k) before December 31 of the tax year you're doing the conversion.
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Nina Fitzgerald
21 Has anyone successfully gotten the IRS to correct this issue AFTER filing returns where the CPA incorrectly taxed the entire backdoor Roth conversion? I just realized my returns from 2021-2023 all have this same mistake.
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Nina Fitzgerald
•4 You can file amended returns (Form 1040-X) for the previous years where this mistake was made. You'll also need to include Form 8606 for each of those years to establish your non-deductible basis. The statute of limitations for amending returns and claiming refunds is generally 3 years from the original filing date, so your 2021-2023 returns should all still be eligible for amendment.
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