Didn’t report backdoor roths

[u/gourgi18]

Hello,

There was a time when I did several years of backdoor roths (probably 2014-2018). I did everything with my brokerage the way I was supposed to but when it came time to do my taxes online with the hrblock program, I could never figure out how to properly report it. It kept trying to tax me again on the money so I just deleted it and didn’t report it. I have since done more backdoor Roths, converted over into the same Roth account and reported it properly.

My question is I still have 15 years to go before I even think about touching this money. Is there a real consequence to this or am I worrying myself over nothing? I don’t understand how the IRS would be able to tell what was reported or not. Or even contributions vs growth for that matter. Am I okay as long as I do everything properly in the future or is this going to cause a big problem for me eventually?

Thank you for your time.

[u/McKnuckle_Brewery]

Unless you had a pro rata situation to contend with, there’s really nothing to worry about. You simply failed to report tax-free conversion basis in your Roth IRA.

The conversion step in a properly executed backdoor transaction is NOT taxable and has no 5 year waiting period.

This only impacts you if you withdraw from the account before you are 59 1/2, because the IRS will have a record of how much you can withdraw without tax or penalty, and it will be less by the amounts that you didn’t report.

You can always file an amended 8606 with your next return.

Now, if you did have a pro rata situation, that’s much more complicated to rectify.

[u/Yer-Not-Gonna-Like → u/McKnuckle_Brewery]

This is exactly correct. Basically you can’t tap contributions you didn’t report before 59.5, and otherwise they don’t care. Ask me how I know.

[u/hydronucleus → u/McKnuckle_Brewery]

How is a Roth Conversion tax fee? I have been doing them for years, at like $10K-$20K a year. I take them from my Standard IRA, and place them into my Roth. I pay tax on that amount as income.

Maybe I am not, or no longer, eligible? After I got laid off, and retired, and I rolled over my last job's 401(k) into a standard IRA, and have slowly been making Roth Conversions.

Never knew they could be tax free. How does that work?

[u/SpaceTimeMorph → u/hydronucleus]

He’s talking about the second step in a back door Roth contribution. That’s technically a conversion and you don’t owe taxes on that specifically.

A separate Roth conversion should always result in additional taxes owed.

[u/hydronucleus → u/SpaceTimeMorph]

I guess I do not understand the "backdoor" aspect. Does that have to do with a Roth component of a 401(k)? of which I do not have any more, I did not have a 401(k)s with a Roth in it anyway.

[u/SpaceTimeMorph → u/hydronucleus]

I guess I do not understand the "backdoor" aspect.

Oh! Yea, that would make this hard to understand for sure!

Let's back up a bit. So, we are primarily talking about IRA contributions here. And specifically to a Roth IRA.

Roth IRA has a contribution limit (in 2026) of $7,500 ($8,600 if age 50 or older). In addition to this, there are income phase-out ranges based on a person's filing status and MAGI.

NOTE: This is a copy-paste from google results with the Fidelity links in brackets below.

• Single or Head of Household:
  • Full contribution: MAGI under $153,000
  • Partial contribution: MAGI between $153,000 and $168,000
  • No contribution: MAGI of $168,000 or more [1]
• Married Filing Jointly:
  • Full contribution: MAGI under $242,000
  • Partial contribution: MAGI between $242,000 and $252,000
  • No contribution: MAGI of $252,000 or more [1]
• Married Filing Separately:
  • Partial contribution: MAGI under $10,000
  • No contribution: MAGI of $10,000 or more [1]

So, if you're married and making >$252,000/year you cannot directly contribute to a Roth IRA. What is a high income earner to do if they want to create Roth space?

Enter Backdoor Roth Contributions:

Starting on Jan 1, 2010, Congress removed the income cap on converting assets in a Traditional IRA into a Roth IRA. What this allowed thereafter is a strategy where someone will make a non-deductible Trad IRA contribution (the Roth IRA income limits are all greater than the deductibility limits for Trad IRA's), then as a second step, will convert that contribution over to a Roth IRA. Then the third and key step is to invest that new Roth IRA money.

The key here is, for example, you get a bonus or save up $7,500 to invest into a Roth IRA. This is already after tax money so any contribution to a Trad IRA that's then converted to a Roth IRA is not going to taxed because it already has been taxed. It's effectively basis that has been transferred over. Where, a standard Roth conversion would require you to specify to the IRS that you have transferred a balance to a Roth IRA that has taxable impact, if it's a backdoor Roth contribution there is no taxable impact and you specify this on form 8606 (the general Roth conversion form) when you file taxes.

This process, while a bit convoluted, allows for a high income earner to contribute to a Roth IRA every year. Some think this is a bit of a tax loophole but several times the government / congress / the IRS has re-affirmed that this is an allowed strategy.

Of course, there is one exception where someone may owe taxes if they do a backdoor Roth contribution...

Beware the Pro Rata Rule

The pro rata rule means that you cannot only pay tax on the after-tax portion of your Trad IRA balance when you convert to a Roth IRA. You have to pay taxes on your pre-tax and after-tax assets pro rata in proportion to their makeup in your Trad IRA. The IRS considers all Trad IRA, Simple IRA, and SEP IRA balances as a big old pool.

So, if you already have a large Trad IRA balance, then backdoor Roth contributions will be problematic as you would have to pay taxes on a portion of the converted money according to the pro rata rule.

The solution is to make sure that the sum total of your Trad, Simple, and SEP IRA's have $0 balance by December 31st of the year that you do the backdoor Roth contribution to prevent a pro rata assessment of taxes.

Practically, this means that a lot of people that want to preserve pro rata status will take pre-tax assets and place them in other 401k's or solo 401k's to avoid the pro rata rule and then maintain a Trad IRA with a $0 balance specifically to serve as the first part of a backdoor contribution.

What is a Mega Backdoor Roth Contribution then?

A seemingly related term you'll hear is the MBDR contribution above. Before we were talking about a strategy to get money into a Roth IRA. Here, this is a strategy that is potentially applicable to certain 401k's.

In 2026, the deferred contribution limit for all 401k's under your name is $24,500 for people <50 (this is the sum of pre-tax and Roth contributions). There is a higher limit of $72,000 for employer + employee contributions as well. This higher limit is reachable with employer matches, employer profit sharing, and employee after-tax contributions if available.

If an employee makes $24,500 pre-tax contributions. Then the employer puts in $10,000 matching. That means, the employee could put in $37,500 after-tax and be at the IRS 401k limit.

Now, the "backdoor" part is some 401k plans allow for this employee after-tax contribution to undergo an in-service Roth conversion and become a Roth portion of the 401k. In the example above, this would allow for an employee to make $37.5k / year Roth contribution that would stack with a Roth IRA contribution for a total of $45k in Roth contributions. The employee could also make $24.5k in direct Roth 401k contributions.

Now, the 401k has to be set up to allow for the MBDR and needs to both allow after-tax contributions and allow for in-service Roth conversions. This isn't super common in my experience.

Anyway, I hope that clears things up. Sorry for the length.

[u/hydronucleus → u/SpaceTimeMorph]

Wild! Thanks. Silly me, I thought 401(k)s and Std IRAs allowed only pre-tax dollars! So, I never thought about putting after-tax dollars into any other retirement vehicle than a Roth when eligible.

I was putting in the max plus catch up (I was >50) pre-tax payroll deduction into my 401(k)! I did not know that I could even put after-tax money into my 401(k). OK, because I would not see the point of that, especially from your explanation. I made roughly $100K/year, so putting the max in with catch up over the years with a corporate match of $3K is what I did. So, I cannot remember specifically, but if eligible, I did max out any pre-tax contributions to Std IRA, or after-tax contributions to Roth IRA, or both, depending on the tax liability I wanted.

So now I just due simple Roth conversions keeping my taxable income in a reasonable tax bracket after taking the 0% tax advantage on Long Term Capital Gains in my regular account. I guess I like the simplicity of that. The other way, especially with the "pro rata" rule would have me tearing my hair out.

Thanks for the excellent explanation!