How to handle 1099-R from Backdoor Roth IRA conversion showing taxable amount?

This is actually normal, so don't worry! When you do a backdoor Roth conversion, you'll always get a 1099-R that shows the full amount in box 1 (distribution amount) and box 2 (taxable amount). The key here is that you need to file Form 8606 with your tax return. This form will show that you made a non-deductible contribution to your traditional IRA, which means you've already paid tax on that money. The form will calculate your "basis" in the IRA, which in your case is the full $7,500 since you converted immediately with no earnings. When you complete Form 8606 correctly, it will show that your taxable amount from the conversion is actually $0, not the $7,500 shown on the 1099-R. The code 2 in box 7 just means it was a distribution before age 59½, which is accurate, but doesn't mean you owe any penalty.

After stressing about a similar situation last year, I found https://taxr.ai super helpful with my backdoor Roth conversion paperwork. I had the exact same issue with my 1099-R showing the full amount as taxable even though it shouldn't have been. I uploaded my 1099-R and previous tax returns, and the AI immediately identified that I needed to file Form 8606 to report my non-deductible contribution. It even walked me through the proper way to report the conversion so I didn't accidentally pay taxes twice on that money. The software also caught that I had a small amount of earnings between my contribution and conversion (like $12) that actually was taxable, which I would have missed on my own.

Just wanted to update after trying taxr.ai for my backdoor Roth conversion tax questions. It was surprisingly good! I uploaded my 1099-R that had the same issue (showing my full conversion as taxable), and it immediately explained why Vanguard reports it that way and why I shouldn't panic. What really impressed me was how it showed me exactly what my Form 8606 should look like based on my specific situation. I've been doing my own taxes for years and never fully understood the basis calculation until now. The explanations were way clearer than what I got from my usual tax software. Also found out I'd been calculating my IRA basis incorrectly for years (had some old contributions I wasn't tracking properly). Definitely saved me from a potential audit headache!

I had literally the SAME problem but with Fidelity last year! After trying to call the IRS for weeks with no luck, I used https://claimyr.com to get through to a real person at the IRS. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was worried I'd get penalized because my 1099-R showed the full taxable amount, and I wanted to confirm how to handle it properly. The Claimyr service connected me to an IRS agent in about 20 minutes when I had been trying for days on my own. The agent confirmed exactly what I needed to do with Form 8606 and assured me this was a common situation with backdoor Roth conversions. Totally worth it for the peace of mind before filing, especially when you're dealing with forms that seem to show contradictory information.

I'm eating crow here. After posting my skeptical comment about Claimyr, I decided to try it anyway because I was desperate to talk to someone at the IRS about my backdoor Roth situation before filing. Not only did it work, but I got through to a human at the IRS in about 15 minutes after trying unsuccessfully for 3 days straight. The agent confirmed that yes, the 1099-R always shows the full amount as taxable for Roth conversions and that Form 8606 is what fixes this on your return. She walked me through exactly what lines to use and even explained how to handle it if I had any pre-tax money in other IRAs (which can complicate the backdoor Roth strategy). The service is legitimate and saved me hours of frustration and probably a tax mistake. Definitely admit when I'm wrong!

Quick tip from someone who's done backdoor Roth for 5 years now: keep records of your Form 8606 FOREVER! I had an IRS notice two years after a conversion asking why I didn't report the "income" from my 1099-R. Had to send them copies of my Form 8606 showing it was non-taxable. They dont automatically cross-reference these forms in their system sometimes.

Does anyone know if you can still do a backdoor Roth for 2024? I thought I heard something about the government closing this "loophole" but I'm not sure if that actually happened or was just proposed.

This is exactly what happened to me last year! The 1099-R showing the full amount as taxable is completely normal and expected for backdoor Roth conversions. Don't panic - you're not doing anything wrong. The key thing to remember is that the 1099-R is just the brokerage firm's way of reporting the distribution to the IRS. They have no way of knowing whether your original contribution was deductible or non-deductible, so they default to showing the entire amount as potentially taxable. When you file Form 8606, you're essentially telling the IRS "Hey, I already paid taxes on this money when I earned it, so the conversion shouldn't be taxed again." The form calculates your basis (the after-tax money you put in) and shows that the taxable portion of the conversion is $0. Make sure you keep good records of your Form 8606 - I learned the hard way that the IRS doesn't always automatically match everything up in their system. But as long as you file it correctly with your return, you'll be fine!