How is a Backdoor Roth Reported on a Tax Return?

Executing a backdoor Roth IRA is a smart savings strategy for high-income earners, but reporting it correctly on your tax return is where the process actually concludes. This is more than just paperwork; it’s a crucial step to ensure the IRS views the transaction as tax-free. This article provides a clear, step-by-step guide to reporting your backdoor Roth IRA, focusing on IRS Form 8606 and preventing the common errors that can lead to an unexpected tax bill.

First, a Quick Primer: What Is a Backdoor Roth IRA?

A backdoor Roth IRA isn’t an official type of account, but rather an IRS-compliant strategy used by individuals whose income is too high to contribute directly to a Roth IRA. The process involves two steps:

1. You make a non-deductible contribution to a traditional IRA.
2. You promptly convert that traditional IRA to a Roth IRA.

If done correctly, there is little to no tax on the conversion. The reason you must report this multi-step transaction is to prove to the IRS that the money you contributed was post-tax (non-deductible). By filing the proper forms, you create a paper trail that documents the money's non-deductible basis, which is what makes the subsequent conversion to a Roth account non-taxable.

Failure to report it can result in the IRS assuming your traditional IRA distribution (the conversion part) is fully taxable, leading to double taxation—once when you earned the income and again upon conversion.

Step 1: Gather Your Tax Documents

Before you get started on the forms, you’ll need to collect the right information. Your financial institution will send you two key forms related to your IRAs, but be aware of the timing—they often arrive after you’ve already filed your taxes. It's best to use your own contribution and conversion records from your account statements, and then use these forms for verification later.

• Form 5498, IRA Contribution Information: This form reports how much you contributed to your traditional IRA (Box 1) for the tax year. It will also show the fair market value of the account and, if you converted it, the amount listed as a Roth conversion (Box 2). You'll typically receive this in May of the following year, because it includes contributions made up to the April tax filing deadline.
• Form 1099-R, Distributions From Pensions, Annuities, etc.: This form reports the distribution—in this case, the conversion—from your traditional IRA. Box 1 shows the gross distribution and Box 7 typically has a code '2' or '7'. Importantly, Box 2a, “taxable amount,” is often empty or says “taxable amount not determined.” Do not take this to mean the entire amount is taxable. It is your job to tell the IRS the correct taxable amount using Form 8606. You should receive this form by January 31st.

Step 2: Complete IRS Form 8606 — The Key to a Tax-Free Transaction

IRS Form 8606, Nondeductible IRAs, is the official form for reporting your backdoor Roth IRA movements. It tracks the basis in your traditional IRAs to calculate the taxable portion of any distribution or conversion. For a "clean" backdoor Roth (where you have no other pre-tax IRA money), the taxable amount should be zero or very close to it.

Let’s walk through the relevant parts assuming you performed a backdoor Roth in 2024 for the maximum contribution of $7,000.

Part I: Nondeductible Contributions and Distributions

This section documents your non-deductible contribution and calculates your total basis.

• Line 1: Enter your total nondeductible contributions to traditional IRAs for 2024. This is your initial contribution, so you would enter $7,000.
• Line 2: Enter your total basis in traditional IRAs from the prior year's Form 8606. If this is your first backdoor Roth and you have no other existing nondeductible IRA money, this will be $0.
• Line 3: Add lines 1 and 2. This is your total basis before any conversions. In our example, this is $7,000 ($7,000 + $0).
• Line 4 & 5: These lines relate to contributions made for 2024 between Jan 1 and the tax deadline in 2025, and distributions you took. For this scenario, we'll keep it simple and assume the contributions were already counted, making the inputs straightforward based on the form instructions. For this simple example, we skip to line 6.

Lines 6 through 13 are where the math gets serious, primarily because of the Pro-Rata Rule. Let’s first cover that critical concept.

A Warning: The Pro-Rata Rule Pitfall

The Pro-Rata Rule is the single most common mistake that trips people up. The IRS views all of your traditional IRAs—including SEP IRAs and SIMPLE IRAs—as one single account for tax purposes. It does not treat your new non-deductible IRA as a separate pot of money.

If you have pre-tax funds in any of those accounts on December 31 of the year you do a Roth conversion, your conversion will be considered a mix of post-tax and pre-tax funds. A portion of it will be taxable.

Example of a costly Pro-Rata mistake:

• You have a pre-existing SEP IRA from an old freelance gig with a balance of $93,000 (all pre-tax).
• You contribute $7,000 to a new traditional IRA for a backdoor Roth.
• On Dec 31, your total balance across all traditional/SEP/SIMPLE IRAs is $100,000 ($93,000 + $7,000).
• You convert the $7,000 from the traditional IRA to a Roth IRA.

The IRS requires you to calculate the taxable portion as follows:

(Total Pre-tax IRA funds / Total of ALL IRA funds) = Taxable Percentage

In this case: ($93,000 / $100,000) = 93% taxable.

This means that 93% of your $7,000 conversion, or $6,510, is considered taxable income. Only $490 (7%) is tax-free. You’ve just created an unexpected tax liability. To avoid this, an individual would need to have a $0 balance in all pre-tax IRAs by December 31 of the conversion year.

Back to Form 8606 (Assuming a Clean Backdoor Roth)

Let’s assume you have no other traditional IRA funds. Your money sat in the traditional IRA for a few days and earned $5 in interest before you converted the full amount. Your total conversion was $7,005.

• Line 6: Enter the value of all your traditional, SEP, and SIMPLE IRAs as of December 31, 2024. In a clean conversion, you converted the entire balance, so this should be $0.
• Line 7: Enter total distributions from those IRAs taken in 2024. This is your conversion amount from the 1099-R, Box 1. Enter $7,005.
• Line 8: Enter the net amount from line 7 that you converted to a Roth IRA. In this case, it's the full amount, $7,005.
• Line 9-12: These lines calculate your non-taxable distribution. Based on the form logic, you'd effectively divide your basis (Line 3: $7,000) by the total distribution (Line 8: $7,005) and multiply by the total distributions taken. It basically determines that most of your distribution is your non-taxable basis. Your basis recovered would be $7,000.
• Line 13: This shows the taxable amount. The form calculates this as Line 8 minus Line 12. In our case: $7,005 - $7,000 = $5. This represents the interest earned, which is correctly taxed as ordinary income.
• Line 14: Your ending basis in your traditional IRA. Since you converted everything, this is now $0.

Part II: Conversions to Roth IRAs

This section confirms the work done in Part I.

• Line 16: Enter the amount you converted to a Roth IRA, which is $7,005.
• Line 17: Enter your basis (the non-deductible part) from Line 11 above. This is $7,000.
• Line 18: Subtract line 17 from 16 to find the taxable amount. $7,005 - $7,000 = $5. This should match the amount on Line 13.

Step 3: Transfer the Information to Form 1040

Now that Form 8606 is complete, you carry the totals to your main tax return, Form 1040.

• Form 1040, Line 4a (IRA distributions): Enter the total distribution amount from Form 8606, line 15a. In our running example, this is $7,005. This amount should match your 1099-R.
• Form 1040, Line 4b (Taxable amount): Enter the calculated taxable amount from Form 8606, line 15b (or the total from Line 18 in Part II). This is $5.

And that’s it. By reporting this correctly, you see a distribution on your tax return, but show the IRS that only a tiny portion (or none, if no gains occurred) is actually subject to tax. Tax software like Turbotax or Drake Tax will automatically generate Form 8606 as you answer questions about your IRA contributions and distributions, but understanding the flow is critical for a review.

Final Thoughts

Reporting a backdoor Roth IRA on your tax return is a meticulous but manageable process. The entire strategy hinges on correctly completing Form 8606 to report your non-deductible contribution, document the conversion, and accurately calculate the small taxable portion, if any. Getting this right ensures your tax-advantaged savings strategy remains tax-free and avoids preventable errors with the IRS.

When clients present a complicated situation, such as dealing with existing pre-tax IRAs or wondering about the timing implications of a conversion, answers can't wait. We designed Feather AI to instantly answer these niche tax questions, providing clear, citation-backed guidance from the IRC and IRS publications. It lets you confirm the correct treatment on Form 8606 or explain a pro-rata calculation with confidence, helping you replace long research hours with a few quick questions.