Tax Reporting of Backdoor Roth IRA

Tax laws require you to report your traditional IRA contribution for the year it was made and any conversions to a Roth IRA during that same year. For example, if you make a contribution for year X in year X+1, it is reported on year X’s tax return. The conversion to a Roth IRA during year X+1 is reported on the tax return for year X+1. This process can be confusing, especially when contributions for the next year are made in the following year, leading to a mix of carryovers and conversions on your Form 8606.

The execution steps are as follows:

1.

Contribute to a traditional IRA for the previous tax year.

2.

Wait for the funds to settle.

3.

Convert the contribution to a Roth IRA but do not elect to withhold taxes from the funds to avoid an early distribution penalty.

4.

When you file your taxes for the previous tax year in which you made the conversion, file a Form 8606, “Nondeductible IRAs”. You will likely need to fill out lines 1–3 and line 14 of Part I.

5.

At tax time for the current year (e.g., in 2026 for 2025), you will also file a Form 8606. For that year, and every tax year in which you do a conversion, you will fill out Part II.

For further details, refer to IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) and 590-B, Distributions from Individual Retirement Arrangements. Great step-by-step guide is offered by The Finance Buff.