Harry Sit's Blog, page 3

eSIM for International Travel Mobile Data Roaming

One thing that unites the world is the mobile phone. When you travel internationally, everywhere you go, people have their phones. Most hotels and many restaurants have Wi-Fi. Still, it’s much easier if you have mobile data when you’re out and about. You can call an Uber, look for restaurants nearby, or find walking directions to attractions or public transit stations.

U.S. Carriers Are Expensive

Mobile data is expensive in the U.S. According to a website, the United States ranked #219 among 237 countries in the world for the cost of mobile data (from the least expensive to the most expensive). Some say it’s primarily due to limited competition, high infrastructure costs, and a poor market structure.

As expensive as it is in the U.S., the U.S. carriers charge multiple times more when you travel outside the country. Some plans charge as much as $10 per day. If you’re out 30 days, that would be $300. And that’s only if you buy the international travel pass before you travel. If you use international roaming without pre-arrangement, your mobile data bill could be enormous. A plan I used to use charges $100 to $150 per GB of mobile data in some countries. If you use 4 GB of mobile data, that would be $400 to $600.

A reasonable cost should be more like $10 — not $10 per day — $10 for the whole trip.

Buy a Local SIM Card

A way to avoid the exorbitant charges from your U.S. carrier is to buy a SIM card locally after you arrive in the foreign country. You find a shop at the airport or on the street to buy a SIM card that covers the length of your stay. You put it into your phone but you have to carefully save your existing SIM card. You’ll need it again when you come back to the U.S.

Image by Tomek from Pixabay

I did this when I traveled to New Zealand in 2016. I bought a SIM card at a store for $5 that covered a whole month.

This works, but it isn’t always easy to find a store that sells SIM cards to international travelers. You may have a language barrier. You have to take precious time out of your vacation to do it. If you lose the tiny SIM card from the U.S., you’ll have to spend time again to replace it after you return.

eSIM

Technology advances since 2016 gave us eSIMs. An eSIM is an electronic equivalent of the tiny physical SIM card. iPhones sold in the U.S. only use eSIMs after iPhone 14 was released in 2022. Other phones released in recent years that still support physical SIM cards also work with eSIMs.

eSIMs don’t have the limitations of physical card trays and card reading contacts. A phone can simultaneously hold two or more eSIMs or one physical SIM plus another eSIM. You can toggle between two SIMs without worrying about losing one.

It also made it much easier to buy a SIM for international travel. You don’t have to find that local store in a foreign country. You can shop online for a wide selection and the best price before you leave.

Chances are that your current phone already supports eSIMs. If you’re not sure, Google your phone’s model plus the word “eSIM” or ask AI.

I use the website esimdb.com when I buy an eSIM. It’s like a search engine for online eSIM vendors. It gets paid a commission by the vendors. I’m not affiliated with it. I use it only because it includes a wide selection.

You search by which country you’re traveling to, for how many days, and how much data you need. Some eSIMs cover multiple countries.

esimdb.com filters

For my typical usage while traveling, 1 GB per week is plenty when hotels have Wi-Fi. I’m going to Quebec, Canada, for a week. esimdb.com shows multiple vendors that sell a 1 GB eSIM for about $2.

Many eSIMs support top-ups. If you need more data than the amount you originally bought, you can go back to the eSIM vendor and pay more to add more data to your eSIM. eSIMs are quite inexpensive anyway. A 1 GB eSIM for Canada costs about $2. A 2 GB eSIM costs about $4. If I don’t want the hassle of possibly running out, paying $4 versus $2 is a rounding error in travel costs.

I look for eSIM vendors that accept Apple Pay, Google Pay, or PayPal because I don’t want to give them my credit card number directly. If a vendor doesn’t accept Apple Pay, Google Pay, or PayPal, I move on to the next one.

It doesn’t matter if you’ve never heard of the vendors listed on esimdb. I have bought eSIMs from several different vendors for different countries, and the eSIMs all worked as advertised.

You get a QR code by email after you buy the eSIM. You add the eSIM to your phone by scanning the QR code with your phone. Adding a new eSIM doesn’t overwrite your existing SIM. You can switch on and off which SIM should be active. Switch off your U.S. line after you board the plane to avoid international roaming charges.

You can add the eSIM before you leave the U.S., but it will drain your battery a little more when the eSIM keeps looking for its carrier and doesn’t find it. If you decide to add the eSIM when you first land in the foreign country, you must be on Wi-Fi when you add it. You also need to display the QR code on a second device, such as a tablet, to scan it, or you can print the QR code on paper and take it with you.

The inexpensive eSIMs are usually data-only eSIMs. You don’t get a local number for calls and texts, but that’s OK. You can use Wi-Fi calling and messaging apps, such as iMessage or WhatsApp. The eSIM uses a local carrier but it doesn’t necessarily come from a carrier in that country. The data roaming setting should still be enabled for it to work.

Unlocked Phone

You need an unlocked phone whether you buy a local physical SIM or eSIM. A phone locked to a specific carrier doesn’t work with a SIM from a different carrier. If you bought your phone directly from the manufacturer, it’s probably unlocked to begin with. Your phone may be locked if you bought it from your carrier at a discounted price or if it’s still on a device payment plan with the phone company.

You can check whether your phone is unlocked if you’re not sure. On an iPhone, it’s under Settings -> General -> About -> Carrier Lock. The menu option for Android phones varies by model. Google the phone’s model and the phrase “carrier unlock status” or ask AI how to find it.

Some phones are still locked after you already satisfied the requirements from your carrier. You can call the carrier and request unlocking. If your current phone is still locked and you can’t unlock it, you may have an older phone that’s unlocked. Put the eSIM on that one and use it for international travel.

Summary

You’ll have mobile data for your phone for usually under $10 for your entire trip if you do these:

1. Check whether your phone supports eSIM. Most recent phones already do.

2. Check whether your phone is unlocked. It probably already is. Request unlocking from your carrier if it’s locked.

3. Buy an eSIM online for your destination(s) before you leave.

4. Add the eSIM to your phone and switch off your U.S. line at the airport. Remember to leave the data roaming setting on.

5. Switch your U.S. line back on after you return and delete the travel eSIM.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

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2025 2026 HSA Contribution Limits and HDHP Qualification

The contribution limits for various tax-advantaged accounts for the following year are usually announced in October, except for the HSA, which comes out in April or May. The contribution limits are adjusted for inflation each year, subject to rounding rules.

You can only contribute to an HSA if you’re covered by a High Deductible Health Plan (HDHP) with no other coverage. You can use the money already in the HSA for qualified medical expenses regardless of what insurance you currently have.

Table of ContentsHSA Contribution LimitsAge 55 Catch-Up ContributionTwo Plans Or Mid-Year ChangesHDHP QualificationContribute From PayrollNon-Dependent Adult ChildrenBest HSA ProvidersHSA Contribution Limits20252026Individual Coverage$4,300$4,400Family Coverage$8,550$8,750HSA Contribution Limits

Source: IRS Rev. Proc. 2024-25, author’s calculation.

Employer contributions are included in these limits.

The family coverage numbers are double the individual coverage numbers in some years but it isn’t always the case every year. Because the individual coverage limit and the family coverage limit are both rounded to the nearest $50, the family coverage limit can be slightly more or slightly less than double the individual coverage limit when one number rounds up and the other number rounds down.

Age 55 Catch-Up Contribution

As in 401k and IRA contributions, you are allowed to contribute extra if you are above a certain age. If you are age 55 or older by the end of the year (not age 50 as in 401k and IRA contributions), you can contribute an additional $1,000 to your HSA. If you are married, and both of you are age 55, each of you can contribute an additional $1,000 to your respective HSA.

However, because an HSA is in one individual’s name, just like an IRA — there is no joint HSA even when you have family coverage — only the person age 55 or older can contribute the additional $1,000 in his or her own name. If only the husband is 55 or older and the wife contributes the full family contribution limit to the HSA in her name, the husband has to open a separate account in his name for the additional $1,000. If both husband and wife are age 55 or older, they must have two HSA accounts in separate names if they want to contribute the maximum. There’s no way to hit the combined maximum with only one account.

The $1,000 additional contribution limit is fixed by law. It’s not adjusted for inflation.

Two Plans Or Mid-Year Changes

The limits are more complicated if you are married and the two of you are on different health plans. It’s also more complicated when your health insurance changes mid-year. The insurance change could be due to a job change, marriage or divorce, enrolling in Medicare, the birth of a child, and so on.

For those situations, please read HSA Contribution Limit For Two Plans Or Mid-Year Changes.

HDHP Qualification

The IRS also defines what qualifies as an HDHP. For 2025, an HDHP with individual coverage must have at least $1,650 in annual in-network deductible and no more than $8,300 in annual out-of-pocket expenses. For family coverage, the numbers are a minimum of $3,300 in annual deductible and no more than $16,600 in annual out-of-pocket expenses.

For 2026, an HDHP with individual coverage must have at least $1,700 in annual deductible and no more than $8,500 in annual out-of-pocket expenses. For family coverage, the numbers are a minimum of $3,400 in annual deductible and no more than $17,000 in annual out-of-pocket expenses.

Please note the deductible number is a minimum while the out-of-pocket number is a maximum. The maximum out-of-pocket limit only applies to the in-network number. If the in-network out-of-pocket limit of your insurance policy is too high, it doesn’t qualify as an HSA-eligible policy.

In addition, just having the minimum deductible and the maximum out-of-pocket isn’t sufficient to make a plan qualify as HSA eligible. The plan must also meet other criteria. See Not All High Deductible Plans Are HSA Eligible.

20252026Individual Coverageminimum deductible$1,650$1,700maximum out-of-pocket$8,300$8,500Family Coverageminimum deductible$3,300$3,400maximum out-of-pocket$16,600$17,000HDHP Qualification

Source: IRS Rev. Proc. 2024-25, author’s calculation.

Contribute From Payroll

If you have a High Deductible Health Plan (HDHP) through your employer, your employer may already set up a linked HSA for you at a selected provider. Your employer may be contributing an amount on your behalf there. You save Social Security and Medicare taxes when you contribute to the HSA through payroll. Your employer may be paying the fees for you on that HSA.

When you contribute to an HSA outside an employer, you claim the tax deduction on your tax return similar to when you contribute to a Traditional IRA. If you use tax software, be sure to answer the questions on HSA contributions. The tax deduction shows up on Form 8889 line 13 and Schedule 1 line 13.

Non-Dependent Adult Children

If your HDHP also covers an adult child who’s not claimed as a dependent on your tax return, each non-dependent adult child covered by the plan can also contribute to a separate HSA in their name at the family coverage level when they don’t have other non-HDHP coverage. This is because they meet the eligibility:

(a) Covered by an HDHP with no other coverage; and
(b) The HDHP policy they have covers more than one person.

Each non-dependent adult child can open a separate HSA on their own with an HSA provider.

Best HSA Providers

If you get the HSA-eligible high deductible plan through an employer, your employer usually has a designated HSA provider for contributing via payroll deduction. It’s best to use that one because your contributions via payroll deduction are usually exempt from Social Security and Medicare taxes. If you want better investment options, you can transfer or roll over the HSA money from your employer’s designated provider to a provider of your choice afterward. See How To Rollover an HSA On Your Own and Avoid Trustee Transfer Fee.

If you are not going through an employer, or if you’d like to contribute on your own, you can also open an HSA with a provider of your choice. For the best HSA providers with low fees and good investment options, see Best HSA Provider for Investing HSA Money.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

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Backdoor Roth in FreeTaxUSA: Recharacterize & Convert, Same Year

You may have contributed to a Roth IRA and then realized later in the same year that you would exceed the income limit. You recharacterized the Roth IRA contribution as a Traditional IRA contribution and converted it to Roth again before the end of the year. Your IRA custodian sent you two 1099-R forms, one for the recharacterization and one for the conversion. This post shows you how to put them into FreeTaxUSA.

If you had done the recharacterizing and converting in the following year, you would have to split the tax reporting into two years by following Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 1 and Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 2. Now because you caught the problem soon enough before the end of the year, you can handle all of it in the same year by following this guide.

Here’s the example scenario we’ll use in this guide:

You contributed $7,000 to a Roth IRA for 2024 in 2024. You realized that your income would be too high later in 2024. You recharacterized the Roth contribution for 2024 as a Traditional contribution. The IRA custodian moved $7,100 from your Roth IRA to your Traditional IRA because your original $7,000 contribution had some earnings. The value increased again to $7,200 when you converted it to Roth before December 31, 2024. You received two 1099-R forms, one for $7,100 and another for $7,200.

If you didn’t do any of these recharacterizing and converting, please follow our guide for a “clean” backdoor Roth in How to Report Backdoor Roth In FreeTaxUSA (Updated).

If you’re married and both you and your spouse did the same thing, you should follow the steps below once for yourself and again for your spouse.

Table of Contents1099-R for Recharacterization1099-R for ConversionRecharacterized ContributionContributed to Roth IRARecharacterized to TraditionalTaxable IncomeForm 8606TroubleshootingThe Entire Conversion Is TaxedSelf vs Spouse1099-R for Recharacterization

We handle the 1099-R form for the recharacterization first. This 1099-R form has a code “N” in Box 7.

Find “Retirement Income (1099-R)” under the Income menu.

Click on the “Add a 1099-R” button.

It’s just a regular 1099-R.

The 1099-R form for the recharacterization shows the amount moved from the Roth IRA to the Traditional IRA in Box 1. It’s $7,100 in our example. The taxable amount is 0 in Box 2a and the “Taxable amount not determined” box isn’t checked. The code in Box 7 is “N” and the “IRA/SEP/SIMPLE” box may or may not be checked. It isn’t checked in our sample form.

The recharacterization wasn’t a rollover.

FreeTaxUSA shows some alerts just to double-check. The zero taxable income on the 1099-R is correct. Code “N” in Box 7 is also correct.

You’re done with the 1099-R form for the recharacterization. Click on the “Add a 1099-R” button to add the other 1099-R for the conversion.

1099-R for Conversion

The 1099-R for the conversion has a code “2” in Box 7 if you’re under age 59-1/2 or a code “7” if you’re 59-1/2 or older.

It’s also a regular 1099-R.

Box 1 shows the amount converted to Roth. It’s $7,200 in our example. It’s normal to have the same amount as the taxable amount in Box 2a when Box 2b is checked saying “taxable amount not determined.” Make sure to choose the correct code in Box 7 to match your 1099-R. The “IRA / SEP / SIMPLE” box is checked.

Your refund number drops after you enter this 1099-R. Don’t panic. It’s normal and temporary. The refund number will come up when we finish everything.

It’s not an inherited IRA.

It’s a Roth conversion. 100% of the amount on the 1099-R was converted from a Traditional IRA to a Roth IRA.

You are done with this 1099-R for the conversion. Repeat if you have another 1099-R. If you’re married and both of you converted to Roth, pay attention to whose 1099-R it is when you enter the second one. You’ll have problems if you assign both 1099-R forms to the same person when they belong to each spouse. Click on “Continue” when you have entered all the 1099-R forms.

It asks you about the basis carried over from previous years. If you never contributed to a Traditional IRA in previous years, you can answer “No.” Answering “Yes” and entering a zero on the next page has the same effect as answering “No.” If you have gone back and forth before you found this guide, some of your previous answers may be stuck. Answering “Yes” here will give you a chance to review and correct them. If you have a basis carryover on line 14 of Form 8606 from your previous year’s tax return, answer Yes here and enter it on the next page.

The value in the first box should be zero if you never contributed to a Traditional IRA in previous years. If you had a small amount of earnings posted to your Traditional IRA after the conversion and you didn’t convert the earnings, enter the account’s value from your year-end statement in the second box. The third box should be zero because you recharacterized before the end of the year.

We didn’t take any disaster distribution.

Now continue with all other income items until you are done with income. Your refund meter is still lower than it should be but it will change soon.

Recharacterized Contribution

Now we tell FreeTaxUSA that we contributed to a Roth IRA before we recharacterized the contribution to a Traditional IRA.

Contributed to Roth IRA

Find the IRA Contributions section under the “Deductions / Credits” menu.

Answer “Yes” to the first question. An excess contribution means contributing more than you’re allowed to contribute. We didn’t have that.

Enter your contribution in the second box because you originally contributed to a Roth IRA. Answer “Yes” to “Did you switch or recharacterize.” We didn’t repay any special distribution.

Recharacterized to Traditional

Select “Yes” to confirm you recharacterized a contribution. It opens up additional inputs for an explanation. If you recharacterized 100% of your original contribution, enter it in the first box. It’s $7,000 in our example. We enter $7,100 from our example in the second box, which is the amount that the IRA custodian moved from the Roth IRA to the Traditional IRA when we recharacterized.

We didn’t contribute to a SEP, solo 401k, or SIMPLE plan. Answer “Yes” if you did.

Withdraw means pulling money out of a Traditional IRA back to your checking account. Converting to Roth is not a withdrawal. Answer “No” here.

The value in the first box should be zero if you never contributed to a Traditional IRA in previous years. The value in the second box should also be zero if you converted everything. If you had a small amount of earnings posted to your Traditional IRA after the conversion and you didn’t convert the earnings, enter the account’s value from your year-end statement in the second box. The third box should be zero because you recharacterized before the end of the year.

You see this screen only if your income falls below the income limit that allows a deduction for a Traditional IRA contribution. You don’t see this if your income is above the income limit. Answering Yes will make your contribution deductible but it will also make your Roth conversion taxable, which comes to a wash. It’s less confusing if you answer “No” here and make the entire amount that could be deducted nondeductible.

It tells us we don’t get a deduction because our income was too high or because we chose to make our contribution nondeductible. We know. That’s why we did the Backdoor Roth.

The refund meter should go back up now.

Taxable Income

Let’s look at how these entries show up on our tax return. Click on the three dots on the top right above the IRA Deduction Summary and then click on “Preview Return.”

Look for Lines 4a and 4b in your Form 1040.

It shows the sum of your two 1099-R forms on line 4a and only $200 is taxable on line 4b. The taxable amount is the difference between the amount you converted to Roth and your original contribution.

Form 8606

Go toward the end of the pop-up to find Form 8606. It shows these for our example:

Line #Amount17,00037,00057,000137,000 *167,200177,00018200 *footnote* From Worksheet-1-1 in Publication 590 BForm 8606

There’s also a statement to describe your recharacterization at the end.

Troubleshooting

If you followed the steps in this guide and you are not getting the expected results, here are a few things to check.

The Entire Conversion Is Taxed

If you don’t have a retirement plan at work, you have a higher income limit to take a deduction on your IRA contribution. If you have a retirement plan at work but your income is low enough, you are also eligible for a deduction on your IRA contribution. FreeTaxUSA gives you the option to take a deduction if it sees that your income qualifies.

Taking the deduction makes a corresponding amount of the Roth conversion taxable. Answering “No” in the “Do you want to take your IRA deduction?” page will have you taxed only on the earnings in your Roth conversion.

Self vs Spouse

If you are married, make sure you don’t have the 1099-R and the IRA contribution mixed up between yourself and your spouse. If you inadvertently assigned two 1099-Rs to one person instead of one for you and one for your spouse, the second 1099-R will not match up with an IRA contribution made by a spouse. If you entered a 1099-R for both yourself and your spouse but you only entered one IRA contribution, you will be taxed on one 1099-R.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

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Protect Your Brokerage Accounts From ACATS Transfer Fraud

When you transfer investments in a brokerage account from one broker to another, it goes by a system called ACATS, which stands for Automated Customer Account Transfer Service. Some people call it ACAT. I’m going with the official name ACATS.

ACATS transfers keep the holdings intact and don’t trigger taxes. I used ACATS when I transferred a part of my account from Fidelity to US Bancorp Investments recently for the 4% rewards card.

With all the hacks and data leaks in recent years, fraudulent ACATS transfers have also become a problem. I read a report of this type of fraud from a poster ww340 on the Bogleheads forum.

I discovered that our taxable account at Vanguard had been slowly pilfered of approximately $100,000 in stocks transferred by ACATS to 2 different brokerage accounts that were not mine over a period of time.

These stock transfers were taken out of our account each time we received a dividend. … … Every few months 750 shares of that fund were transferred. Transfers were made 3 times before I realized it was happening.

Source: ACAT fraud with a twist – Vanguard, Bogleheads Forum.

We don’t want our investments stolen from us. How do we protect our accounts from ACATS fraud?

Fraudulent Account In Your Name

ACATS is a pull-only system. All transfer requests start at the receiving firm. A transfer requires a medallion signature guarantee if names don’t match between the receiving and the sending accounts. Therefore thieves usually start with creating a fraudulent account in your name at another broker. They don’t have to hack into your account when they could just pull from an account they control.

Opening a brokerage account doesn’t require a credit check. Freezing your credit doesn’t stop it. Freezing your ChexSystems report doesn’t stop it either because that’s only for banks and credit unions. If someone has your name, Social Security Number, address, and phone number, they have all the information to open a brokerage account in your name. All those pieces of information have been leaked in repeated hacks.

Because thieves can choose paperless delivery at many financial institutions, you may have no clue when a fraudulent account is opened in your name somewhere out there. Some brokers still send mail. You should be on alert if you receive mail from a financial institution you don’t use.

Account Number and Statement

An ACATS transfer request requires the account number of the source account. Some brokers ask for a recent account statement from the source account but it’s often optional. My recent transfer went through without a statement.

An ACATS transfer doesn’t require confirmation by the customer at the sending firm either. A transfer would go through if someone had your account number and the names matched on both accounts. Therefore you should safeguard your account number from falling into the wrong hands. That’s the critical piece of information for a successful ACATS transfer.

A partial transfer also requires knowing your holdings, which are listed in your online account or statements. Therefore you should protect your account statements.

Choose paperless statements and tax forms. They are more secure than hard copies sent by mail. Store those documents securely.

Your brokerage account should have the strongest 2-factor authentication. Don’t let thieves reset your password to get your account number or holdings. See Security Hardware for Vanguard, Fidelity, and Schwab Accounts. If you submit your statement to someone to qualify for a loan, black out the account number.

Your email should also have the strongest 2-factor authentication. Don’t let thieves find your account number or holdings in some emails. See Secure Your Email Account to Prevent Wire Fraud.

Enable Lockdown

Fidelity is the only broker I know that offers an optional Money Transfer Lockdown feature. It doesn’t stop all the ways money can go out of an account but a partial lockdown is better than no lockdown. Fidelity will reject all ACATS transfers when you turn on this setting on an account.

Enabling the lockdown also stops some legit transfers you initiate. You’ll have to disable the lockdown, do your transfer, and re-enable the lockdown. It’s a tradeoff between convenience and protection.

Transfer Alerts

An ACATS transfer doesn’t require an approval from you before it goes through but it’s helpful if your broker at least sends you an alert when it receives a transfer request or immediately after it processes a transfer. Some brokers don’t do any of that.

Fidelity sent me an alert when they received my legit transfer request through US Bancorp Investments. When I transferred from Vanguard last year, Vanguard didn’t send me anything either before or after they processed the transfer. A fraudulent transfer could’ve gone through without my knowledge. Vanguard only sent me a letter after a few weeks saying the account was closed. I would’ve received nothing if it had been a partial transfer and the account was still open, as was the fraudulent transfer against ww340.

If your broker notifies you by mail, it’s helpful if you open it. The poster ww340 said,

I had everything online and usually only get proxy votes or fund information sheets, so I do not always open Vanguard mail.

That was a mistake. Use a broker that sends you alerts about these transfers either before or after the transfer is processed. The sooner you know, the better chances you have to stop the transfer or reverse it. Make a habit of reading everything that comes from your broker.

A Flood of Spam

Beware when you receive a sudden flood of spam emails and texts. It’s a telltale sign you’re under attack somewhere. Thieves flood you with spam to bury the notification emails and texts from your financial institution. This happened to ww340:

My email got hundreds or thousands of spam emails every time a fraudelent order was placed. My email had 73,000 emails with 99% of those were spam and spam subscriptions. So that hid the fraud when the notices were hidden among the spam.

Call your banks and brokers immediately and tell them to stop all transactions if you see a surge of spam emails or texts.

Check Your Accounts

Some people suggest not checking your investment accounts often. This helps you avoid trading on fear or greed. That’s good if your broker will notify you of outgoing activities and you’re on top of the notifications. Otherwise your account or shares could be long gone before you notice.

Brokers send you account statements monthly or quarterly for a reason. You don’t need to check your accounts daily. I suggest checking monthly for unusual activities.

Keep Independent Records

An ACATS transfer can be a full transfer of the entire account or a partial transfer of select holdings. A full account transfer is easier to detect when you see your entire account is gone. A partial transfer such as leeching 750 shares at a time is more difficult to see.

Portfolio values fluctuate with the market prices but you should match the number of shares in your account with your independent records. Don’t just look at the total value of your account. Look at the number of shares in each holding. Thieves that stole from ww340 tried to hide their theft by transferring out shares shortly after a dividend was paid. You may not detect it easily if you only look at the total value.

Many old-timers use Quicken to track their accounts. I use Microsoft Money, which was discontinued 10+ years ago but you can still find the last free release on archive.org. It still works on Windows 11. What system you use doesn’t matter as long as it helps you track your shares independently. An online aggregator such as Empower or Fidelity’s Full View isn’t the best tool for this purpose because they don’t maintain an independent source of truth. An online aggregator only reports what’s currently in your accounts.

You should know how many shares you should have in each holding at any time. Compare them with how many shares you see in your account. You’ll know when you see a difference. Having fewer accounts, fewer holdings, and fewer transactions will make this task easier.

***

ACATS was designed before all the hacks and data leaks. Now the account number is the only secret that prevents a fraudulent transfer. We must do everything we can to protect this secret. It helps to turn on the lockdown setting if your broker offers it. It also helps to use a broker that notifies you of pending and completed transfers.

Fraudulent ACATS transfers can be reversed. We want to detect them sooner rather than later. Check your account activities monthly and keep independent records.

[Image Credit: Gerd Altmann from Pixabay.]

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

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Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 2

[Updated on January 30, 2025 with screenshots from FreeTaxUSA for the 2024 tax year.]

The previous post Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 1 dealt with contributing to a Traditional IRA for the previous year and recharacterizing a previous year’s Roth IRA contribution as a Traditional IRA contribution. This post handles the conversion part in FreeTaxUSA. If you use TurboTax or H&R Block tax software, see:

Split-Year Backdoor Roth IRA in TurboTax, Year 2Split-Year Backdoor Roth IRA in H&R Block, Year 2

We cover two example scenarios in this post. Here’s the first:

You contributed $6,500 to a Traditional IRA for 2023 in 2024. The value increased to $6,700 when you converted it to Roth in 2024. You received a 1099-R form listing this $6,700 Roth conversion.

You should’ve already reported the contribution part on your 2023 tax return by following Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 1 last year. The IRA custodian sent you a 1099-R form for the conversion in 2024. This post shows you how to put it into FreeTaxUSA.

Here’s the second example scenario:

You contributed $6,500 to a Roth IRA for 2023 in 2023. You realized that your income was too high when you did your 2023 taxes in 2024. You recharacterized the Roth contribution for 2023 as a Traditional contribution before April 15, 2024. The IRA custodian moved $6,600 from your Roth IRA to your Traditional IRA because your original $6,500 contribution had some earnings. The value increased again to $6,700 when you converted it to Roth in 2024. You received two 1099-R forms, one for $6,600 and another for $6,700.

You should’ve already reported the recharacterized contribution on your 2023 tax return by following Split-Year Backdoor Roth IRA in FreeTaxUSA, 1st Year last year. The IRA custodian sent you two 1099-R forms, one for the recharacterization, and the other for the conversion. This post shows you how to put both of them into FreeTaxUSA.

If you contributed for 2024 in 2025 or if you recharacterized a 2024 contribution in 2025, you’re still in year 1 of this journey. Please follow Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 1.

If neither of these example scenarios fits you, please consult our guide for a normal “clean” backdoor Roth: How to Report Backdoor Roth In FreeTaxUSA (Updated).

If you’re married and both you and your spouse did the same thing, you should follow the steps below for both yourself and your spouse.

Table of Contents1099-R for Recharacterization1099-R for ConversionClean Backdoor Roth On TopTaxable IncomeForm 8606TroubleshootingConversion Is TaxedSelf vs Spouse1099-R for Recharacterization

This section only applies to the second example scenario. If you contributed directly to a Traditional IRA for 2023 in 2024 and didn’t recharacterize (the first example scenario), please skip this section and jump over to the conversion section.

We handle the 1099-R form for recharacterization first. This 1099-R form has a code “R” in Box 7.

Find “Retirement Income (1099-R)” under the Income menu.

Click on the “Add a 1099-R” button.

It’s just a regular 1099-R.

Enter the 1099-R for the recharacterization exactly as you have it. Box 1 shows the amount transferred from the Roth IRA to the Traditional IRA when you recharacterized your 2023 contribution in 2024. Box 2a shows that the recharacterization isn’t taxable. Box 2b “taxable amount not determined” isn’t checked. The code in Box 7 is “R.” The “IRA / SEP / SIMPLE” box isn’t checked.

Your 1099-R shows 2024 but FreeTaxUSA says you should’ve reported it on your 2023 tax return. The problem is you didn’t have it back then. You couldn’t have reported something you didn’t have. Select the correct year and continue anyway.

The recharacterization wasn’t a rollover.

FreeTaxUSA shows some alerts. The zero taxable income on the 1099-R is correct. Code “R” in Box 7 is also correct. Although you didn’t include this 1099-R last year because you didn’t have it at that time, you don’t need to amend last year’s tax return if you reported the recharacterization in a different way when you followed Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 1 last year. You may need to amend last year’s return only if you didn’t report the recharacterization last year at all.

You’re done with the 1099-R form for the recharacterization. Click on the “Add a 1099-R” button to add the other 1099-R for the conversion.

1099-R for Conversion

The 1099-R for the conversion has a code “2” in Box 7 if you’re under age 59-1/2 or a code “7” if you’re 59-1/2 or older.

It’s also a regular 1099-R.

Box 1 shows the amount converted to Roth. If you contributed to a Traditional IRA for 2024 in 2024 and converted in 2024 (a “clean” backdoor Roth) on top of converting the 2023 contribution in 2024, the amount on the 1099-R includes two years’ worth of contributions. It’s normal to have the same amount as the taxable amount in Box 2a when Box 2b is checked saying “taxable amount not determined.” Make sure to choose the correct code in Box 7 to match your 1099-R. The “IRA / SEP / SIMPLE” box is checked.

Your refund number drops after you enter the 1099-R. Don’t panic. It’s normal and temporary. The refund number will come up when we finish everything.

It’s not an inherited IRA.

It’s a Roth conversion. 100% of the amount on the 1099-R was converted from a Traditional IRA to a Roth IRA.

You are done with this 1099-R for the conversion. Repeat if you have another 1099-R. If you’re married and both of you converted to Roth, pay attention to whose 1099-R it is when you enter the second one. You’ll have problems if you assign both 1099-R forms to the same person when they belong to each spouse. Click on “Continue” when you have entered all the 1099-R forms.

Answer “Yes” here because you had a Traditional IRA contribution from last year.

Get the value for the first box from last year’s Form 8606 Line 14 (assuming that you did last year correctly). If you didn’t have a Form 8606 last year because you didn’t do it correctly, your basis is the amount of your 2023 Traditional IRA contribution minus any deduction you took on last year’s Schedule 1 Line 20. The total basis is $6,500 in our example.

The second box should be zero when you emptied all your Traditional IRAs after converting them to Roth and you don’t have any SEP or SIMPLE IRAs. If you had a few dollars of earnings posted in the Traditional IRA after you converted and you left them in the account, get the value from your year-end statement and put it in the second box. The software will apply the pro-rata rule.

The third box should also be zero when you made your 2024 contribution in 2024.

We didn’t take any disaster distribution.

Now continue with all other income items until you are done with income.

Clean Backdoor Roth On Top

If you did a “clean” backdoor Roth on top of converting the 2023 contribution in 2024 (contributed to a Traditional IRA for 2024 in 2024 and converted in 2024), the conversion part of the clean backdoor Roth is already included in the 1099-R form we just completed. Now we do the contribution part.

Find the “IRA Contributions” section under the “Deductions / Credits” menu.

Answer “Yes” to the first question. An excess contribution means contributing more than you’re allowed to contribute. We didn’t have that.

Enter the amount you contributed to the Traditional IRA for 2024 in the first box. Leave the answer to “Did you switch or recharacterize” at No. We converted. We didn’t switch or recharacterize. We didn’t repay any distribution either.

Your refund number goes up again after you enter the contribution.

We didn’t contribute to a SEP, solo 401k, or SIMPLE plan. Answer Yes if you did.

“Withdraw” means pulling money out of a Traditional IRA back to your checking account. Converting to Roth is not a withdrawal. Answer “No” here.

FreeTaxUSA shows the same page we saw before in the conversion section. Confirm and continue.

It tells us we don’t get a deduction because our income is too high. If you see a deduction here it means the software thinks your income qualifies for a deduction, which may or may not be correct. Please see the Troubleshooting section.

Taxable Income

You’re done with the 1099-R forms. Let’s look at how they show up on your tax return. Click on the three dots on the top right above the IRA Deduction Summary and then click on “Preview Return.”

Look for Lines 4a and 4b in your Form 1040.

Line 4a shows the amount on your 1099-R for the Roth conversion. Line 4b shows the taxable amount, which is the earnings between the time you contributed to your Traditional IRA and the time you converted it to Roth. The taxable amount on Line 4b would be zero if you didn’t have any earnings.

Form 8606

Go toward the end of the pop-up to find Form 8606. It shows these for our example:

Line #Amount17,000 (only if you also did a “clean” backdoor Roth on top, otherwise blank.)26,5003The sum of Line 1 and Line 25The same as Line 38The amount on your 1099-R with a code 2 or 713The same as Line 314blank (or a small amount if your Traditional IRA had a small balance at the end of 2024)16The same as Line 817Line 3 minus Line 1418The difference between Line 16 and Line 17Form 8606Troubleshooting

If you followed the steps and you are not getting the expected results, here are a few things to check.

Conversion Is Taxed

If you don’t have a retirement plan at work, you have a higher income limit to take a deduction on your Traditional IRA contribution. If you have a retirement plan at work but your income is low enough, you are also eligible for a deduction on your Traditional IRA contribution. FreeTaxUSA gives you the deduction if it sees that your income qualifies. It doesn’t give you the choice of making it non-deductible.

Part of your conversion could be taxed because you took a deduction on the Traditional IRA contribution last year or this year. You see whether you took a deduction by looking at Schedule 1 Line 20 on last year’s and this year’s tax returns.

The taxable Roth IRA conversion and the deduction for your Traditional IRA contribution offset each other to create a wash. This is normal and it doesn’t cause any problems when you indeed don’t have a retirement plan at work or when your income is sufficiently low.

If you actually have a retirement plan at work, maybe the software didn’t see it. Whether you have a retirement plan at work is marked by the “Retirement plan” box in Box 13 of your W-2.

Maybe you forgot the check it when you entered the W-2. Double-check the “Retirement plan” box in Box 13 of your (and your spouse’s) W-2 entries in FreeTaxUSA to make sure they match the W-2.

Self vs Spouse

If you are married, make sure you don’t have the 1099-R and the IRA contribution mixed up between yourself and your spouse. If you inadvertently assigned two 1099-Rs to one person instead of one for you and one for your spouse, the second 1099-R will not match up with a Traditional IRA contribution made by a spouse. If you entered a 1099-R for both yourself and your spouse but you only entered one Traditional IRA contribution, you will be taxed on one 1099-R.

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Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 1

[Updated on January 30, 2025 with updated screenshots from FreeTaxUSA for the 2024 tax year.]

The best way to do a backdoor Roth is to do it “clean” by contributing *for* and converting in the same year — contribute for 2024 in 2024 and convert in 2024, and contribute for 2025 in 2025 and convert in 2025. Don’t split them into two years: contributing for 2023 in 2024 and converting in 2024 or contributing for 2024 in 2025 and converting in 2025. If you did a “clean” backdoor Roth and you’re using FreeTaxUSA, please follow How to Report Backdoor Roth In FreeTaxUSA (Updated).

However, many people didn’t know they should’ve done it “clean.” Some people thought it was natural to contribute to an IRA for 2024 between January 1 and April 15, 2025. Some people contributed directly to a Roth IRA for 2024 in 2024 and only found out their income was too high when they did their 2024 taxes in 2025. They had to recharacterize the previous year’s Roth IRA contribution as a Traditional IRA contribution and convert it again to Roth after the fact.

When you contribute for the previous year and convert (or recharacterize and convert in the following year), you have to report them on your tax return in two different years: the contribution in one year and the conversion in the following year. It’s more confusing than a straight “clean” backdoor Roth but that’s the price you pay for not knowing the right way. This post shows you how to enter the contribution part in FreeTaxUSA for the first year. Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 2 shows you how to do the conversion part for the second year.

I’m showing two examples — (1) a direct contribution to a Traditional IRA for the previous year; and (2) recharacterizing a Roth contribution for the previous year as a Traditional contribution. Please see which example matches your scenario and follow along accordingly.

Table of ContentsContributed for the Previous YearContributed to Traditional IRAForm 8606Break the CycleRecharacterized Roth ContributionContributed to Roth IRARecharacterized to TraditionalForm 8606Switch to Clean Backdoor RothTroubleshootingNo 1099-RContribution Is DeductibleContributed for the Previous Year

Here’s the example scenario for a direct contribution to the Traditional IRA:

You contributed $7,000 to a Traditional IRA for 2024 between January 1 and April 15, 2025. You then converted it to Roth in 2025.

Because your contribution was *for* 2024, you need to report it on your 2024 tax return by following this guide. Because you converted in 2025, you won’t get a 1099-R for your conversion until January 2026. You will report the conversion when you do your 2025 tax return. Come again next year to follow Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 2.

If you contributed to a Traditional IRA in 2024 for 2023, everything below should’ve happened in your 2023 tax return. In other words, if this fits you:

You contributed $6,500 to a Traditional IRA for 2023 between January 1 and April 15, 2024. You then converted it to Roth in 2024.

Then you should’ve gone through the steps below in your 2023 tax return. If you didn’t, you should fix your 2023 return. The conversion part is covered in Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 2.

If you’re married and both you and your spouse did the same thing, you must follow the same steps below for both you and your spouse.

If you first contributed to a Roth IRA in 2024 and then recharacterized it as a Traditional contribution in 2025, please jump over to the next example.

Contributed to Traditional IRA

Find the “IRA Contributions” section under the “Deductions / Credits” menu.

Answer Yes to the first question even though it says “during” 2024 when you contributed “for” 2024 in 2025. An excess contribution means contributing more than you’re allowed to contribute. We didn’t have that.

Enter the amount you contributed to the Traditional IRA in the first box. Leave the answer to “Did you recharacterize” at No. We converted. We didn’t switch or recharacterize. We didn’t repay any distribution either.

We didn’t contribute to a SEP, solo 401k, or SIMPLE plan. Answer Yes if you did.

Withdraw means pulling money out of a Traditional IRA back to your checking account. Converting to Roth is not a withdrawal. Answer “No” here.

The first box is normally zero if this is the first time you contributed to a Traditional IRA. If you made nondeductible contributions to a Traditional IRA in previous years, get the value from your last year’s Form 8606 Line 14 (assuming you did your tax return correctly). If you entered a number in the first box because you didn’t understand what it was asking, now is the chance to correct it.

The second box is also blank or zero when you had no Traditional, SEP, or SIMPLE IRA as of December 31, 2024.

Enter your contribution in the third box because you did it between January 1 and April 15, 2025.

It tells us we don’t get a deduction because our income was too high. We know. That’s why we did the Backdoor Roth. If the number isn’t zero here, it means the software thinks you qualify for a deduction with your income. You don’t have a choice to decline the deduction.

Form 8606

Let’s look at Form 8606 to confirm that it did everything correctly. Click on the three dots on the top right above the IRA Deduction Summary page and then click on “Preview Return.”

Scroll toward the end of the tax forms to find Form 8606. You should see that only lines 1, 3, and 14 are filled in with your contribution amount. It’s important to see the number on Line 14. This number will carry over to 2025. It’ll make your conversion in 2025 not taxable.

If you don’t see a Form 8606 or if your Form 8606 doesn’t look right, please check the Troubleshooting section.

Break the Cycle

While you’re at it, you should break the cycle of contributing for the previous year and create a new habit of contributing for the current year. Contribute to a Traditional IRA for 2025 in 2025 and convert in 2025.

You’re allowed to convert more than once in a single year. You’re allowed to convert more than one year’s contribution amount in a single year. Your larger conversion is still not taxable when you convert both your 2024 contribution and your 2025 contribution in 2025. Then you will start 2026 fresh. Contribute for 2026 in 2026 and convert in 2026.

Recharacterized Roth Contribution

Now let’s look at our second example scenario.

You contributed $7,000 to a Roth IRA for 2024 in 2024. You realized that your income was too high when you did your 2024 taxes in 2025. You recharacterized the Roth contribution for 2024 as a Traditional contribution before April 15, 2025. The IRA custodian moved $7,100 from your Roth IRA to your Traditional IRA because your original $7,000 contribution had some earnings. Then you converted it to Roth in 2024.

Because your contribution was for 2024, you need to report it on your 2024 tax return by following this guide. Because you converted in 2025, you won’t get a 1099-R for your conversion until January 2026. You will report the conversion when you do your 2025 tax return. Come back again next year to follow Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 2.

Similar to our first example, if you did the same in 2024 for 2023, you should’ve done everything below when you did your 2023 taxes. In other words, if this fit you:

You contributed $6,500 to a Roth IRA for 2023 in 2023. You realized that your income was too high when you did your 2023 taxes in 2024. You recharacterized the Roth contribution for 2023 as a Traditional contribution before April 15, 2024. The IRA custodian moved $6,600 from your Roth IRA to your Traditional IRA because your original $6,500 contribution had some earnings. Then you converted it to Roth in 2024.

Then you should’ve taken all the steps below last year in your 2023 tax return. If you didn’t, you need to fix your 2023 return. The conversion part is covered in Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 2.

Contributed to Roth IRA

Find the IRA Contributions section under the “Deductions / Credits” menu.

Answer “Yes” to the first question. An excess contribution means contributing more than you’re allowed to contribute. We didn’t have that.

Enter your contribution in the second box because you originally contributed to a Roth IRA. Answer “Yes” to “Did you switch or recharacterize.” We didn’t repay any special distribution.

Recharacterized to Traditional

Select “Yes” to confirm you recharacterized a contribution. It opens up additional inputs for a statement required by the IRS. If you recharacterized 100% of your original contribution, enter it in the first box. It’s $7,000 in our example. We enter $7,100 from our example in the second box, which is the amount that the IRA custodian moved from the Roth IRA to the Traditional IRA when we recharacterized.

We didn’t contribute to a SEP, solo 401k, or SIMPLE plan. Answer Yes if you did.

Withdraw means pulling money out of a Traditional IRA back to your checking account. Converting to Roth is not a withdrawal. Answer “No” here.

All three boxes should normally be blank or zero.

The first box is normally zero when you didn’t make any nondeductible contributions to a Traditional IRA in previous years. If you did, get the value from your last year’s Form 8606 Line 14 (assuming you did your tax return correctly). If you entered a number in the first box because you didn’t understand what it was asking, now is the chance to correct it.

The second box is also blank or zero when you had no Traditional, SEP, or SIMPLE IRA as of December 31, 2024.

The third box is also blank or zero because you made the original contribution in 2024. Recharacterizing makes it as if you contributed to a Traditional IRA to begin with.

It tells us we don’t get a deduction because our income was too high. We know. That’s why we did the Backdoor Roth. If the number isn’t zero here, it means the software thinks you qualify for a deduction with your income. You don’t have a choice to decline the deduction.

Form 8606

Let’s look at the Form 8606 to confirm that it did everything correctly. Click on the three dots on the top right above the IRA Deduction Summary and then click on “Preview Return.”

Scroll toward the end of the tax forms to find Form 8606. You should see that only lines 1, 3, and 14 are filled in with your contribution amount. It’s important to see the number in Line 14. This number will carry over to 2025. It’ll make your conversion in 2025 not taxable.

If you don’t see a Form 8606 or if your Form 8606 doesn’t look right, please check the Troubleshooting section.

Switch to Clean Backdoor Roth

While you are at it, you should switch to a clean backdoor Roth for 2025. Rather than contributing directly to a Roth IRA, seeing that you exceed the income limit, recharacterizing it, and converting it again, you should simply contribute to a Traditional IRA for 2025 in 2025 and convert it to Roth in 2025 if there’s any possibility that your income will be over the limit again.

You’re allowed to do a clean backdoor Roth even if your income ends up below the income limit for a direct contribution to a Roth IRA. It’s much simpler than the confusing recharacterize-and-convert maneuver.

You’re allowed to convert more than once in the same year. You’re allowed to convert more than one year’s contribution amount in a single year. Your larger conversion is still not taxable when you convert both your 2024 contribution and your 2025 contribution in 2025. Then you will start 2026 fresh. Contribute for 2026 in 2026 and convert in 2026.

Troubleshooting

If you followed the steps and you are not getting the expected results, here are a few things to check.

No 1099-R

You get a 1099-R only if you converted to Roth in 2024. Because you only converted in 2025, you won’t get a 1099-R until January 2026. This is normal. You do the conversion part next year by using Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 2.

Contribution Is Deductible

If you don’t have a retirement plan at work, you have a higher income limit to take a deduction on your Traditional IRA contribution. FreeTaxUSA will give you the deduction if it sees that you qualify. It doesn’t give you the choice of making it non-deductible. You see this deduction on Schedule 1, Line 20.

You don’t get a Form 8606 when your contribution is fully deductible. The numbers on Lines 1, 3, and 14 of your Form 8606 are less than your full contribution when your contribution is partially deductible.

Taking this deduction also makes your Roth IRA conversion taxable next year. You’ll pay less tax this year and more tax next year. In a way, it’s better because you get to use the money for one year.

If you actually have a retirement plan at work, the software didn’t see it. Whether you have a retirement plan at work is marked by the “Retirement plan” box in Box 13 of your W-2.

Maybe you forgot to check it when you entered the W-2. Double-check the “Retirement plan” box in Box 13 of your (and your spouse’s) W-2 entries in FreeTaxUSA to make sure they match the W-2.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

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2024 2025 ACA Health Insurance Premium Tax Credit Percentages

If you buy health insurance from healthcare.gov or a state-run ACA exchange, there used to be a hard cutoff for whether you qualify for a premium tax credit. You didn’t qualify for a premium tax credit if your income was above 400% of the Federal Poverty Level (FPL). New laws removed the hard cutoff at 400% of FPL through 2025. See ACA Premium Subsidy Cliff Turns Into a Slope.

Now, how much credit you qualify for is determined by a sliding scale. The government says that based on your income, you are supposed to pay this percentage of your income toward a second lowest-cost Silver plan in your area. After you pay that amount, the government will take care of the rest.

If you pick a less expensive policy than the second lowest-cost Silver plan, you keep 100% of the savings, up to the point you get the policy for free. If you pick a more expensive policy than the second lowest-cost Silver plan, you pay 100% of the difference.

That sliding scale is called the Applicable Percentages Table. The applicable percentages have been lowered significantly through the end of 2025. It reduced the amount many people would otherwise pay toward their ACA health insurance.

Here are the applicable percentages for different income levels through 2025:

Income2024 – 2025< 133% FPL0%< 150% FPL0%< 200% FPL0% – 2%< 250% FPL2% – 4%< 300% FPL4% – 6%<= 400% FPL6% – 8.5%> 400% FPL8.5%ACA Applicable Percentages

Source: IRS Rev. Proc. 2024-35.

The percentage of income the government expects you to pay toward a second lowest-cost Silver plan depends on your income relative to the Federal Poverty Level. To calculate where your income falls relative to the Federal Poverty Level, please see Federal Poverty Levels (FPL) For Affordable Care Act (ACA).

If your income is low, they expect you to pay a low percentage of your low income. As your income goes higher, they expect you to pay a higher percentage of your higher income. The higher percentage applies not just to the additional income but to your entire income. A higher income times a higher percentage is much more than a lower income times a lower percentage.

For example, a household of two in the lower 48 states is expected to pay 7.06% of their income when their 2025 income is $70,000. If they increase their income to $80,000, they are expected to pay 8.28% of their income. The increase in their expected contribution toward ACA health insurance, and the corresponding decrease in their premium tax credit will be:

$80,000 * 8.28% – $70,000 * 7.06% = $1,682

This represents about 17% of the $10,000 increase in their income. For a married couple, the effect of paying 17% of the additional income toward ACA health insurance is greater than the effect of paying 12% toward their federal income tax. It makes the effective marginal tax rate on the additional $10,000 income 29%, not 12%.

Normally it’s a good idea to consider Roth conversion or harvesting tax gains in the 12% tax bracket, but those moves become much less attractive when you receive a premium subsidy for the ACA health insurance. For a helpful tool that can calculate this effect, please see Tax Calculator With ACA Health Insurance Subsidy.

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How to Report 2024 Backdoor Roth In FreeTaxUSA (Updated)

[Updated on January 30, 2025 with screenshots from FreeTaxUSA for the 2024 tax year.]

TurboTax and H&R Block are the two major tax software for filing personal tax returns. A low-cost alternative to TurboTax and H&R Block software is FreeTaxUSA. FreeTaxUSA isn’t only for simple returns. It can still handle more complex transactions, such as the Backdoor Roth.

Just as a refresher, a Backdoor Roth involves making a non-deductible contribution to a Traditional IRA followed by converting from the Traditional IRA to a Roth IRA. Both the contribution and the conversion need to be reported in the tax software. For more information on Backdoor Roth, please read Backdoor Roth: A Complete How-To.

Table of ContentsWhat To ReportConvert From Traditional IRA to RothTraditional IRA ContributionTaxable Income from Backdoor RothTroubleshootingWhat To Report

You report on the tax return your contribution to a Traditional IRA *for* that year, and you report the conversion to Roth *during* that year.

For example, when you are doing your tax return for year 2024, you report the contribution you made *for* 2024, whether you actually did it in 2024 or between January 1 and April 15, 2025. You also report the conversion to Roth *during* 2024, whether the contribution was made for 2024, 2023, or any previous years. Therefore a contribution made in 2025 for 2024 goes on the tax return for 2024. A conversion done during 2025 after you made a contribution for 2024 goes on the tax return for 2025.

You do yourself a big favor and avoid a lot of confusion by doing your contribution for the current year and finishing your conversion in the same year. I call this a “planned” Backdoor Roth or a “clean” Backdoor Roth — you’re doing it deliberately. Don’t wait until the following year to contribute for the previous year.  Contribute for 2025 in 2025 and convert it in 2025. Contribute for 2026 in 2026 and convert it in 2026. This way everything is clean and neat.

If you are already off by one year, it depends on whether you’re handling the contribution part or the conversion part right now. If you contributed to a Traditional IRA for 2024 in 2025 or if you recharacterized a 2024 Roth contribution to Traditional in 2025, please follow Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 1. If you contributed to a Traditional IRA for 2023 in 2024 or if you recharacterized a 2023 Roth contribution to Traditional in 2024 and converted in 2024, please follow Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 2.

Here’s the scenario we’ll use as an example:

You contributed $7,000 to a traditional IRA in 2024 for 2024. Your income is too high to claim a deduction for the contribution. By the time you converted it to Roth IRA, also in 2024, the value grew to $7,200. You have no other traditional, SEP, or SIMPLE IRA after you converted your traditional IRA to Roth. You did not roll over any pre-tax money from a retirement plan to a traditional IRA after you completed the conversion.

If your scenario is different, you will have to make some adjustments to the screens shown here.

Before we start, suppose this is what FreeTaxUSA shows:

We’ll compare the results after we enter the Backdoor Roth.

Convert From Traditional IRA to Roth

The tax software works on income items first. We enter the conversion first even though the conversion happened after the contribution.

When you convert from a Traditional IRA to a Roth IRA, you will receive a 1099-R form. Complete this section only if you converted *during* 2024. If you only converted in 2025, you won’t have a 1099-R until next January. Please follow Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 1 now and come back next year to follow Split-Year Backdoor Roth IRA in FreeTaxUSA, Year 2. If your conversion during 2024 was against a contribution you made for 2023 or a 2023 contribution you recharacterized in 2024, please follow Split-Year Backdoor Roth IRA in FreeTaxUSA, 2nd Year.

In our example, by the time you converted, the money in the Traditional IRA had grown from $7,000 to $7,200.

Click on “Add a 1099-R” when it asks you about the 1099-R.

It’s just a regular 1099-R.

Enter the 1099-R exactly as you have it. Pay attention to the code in Box 7 and the checkboxes. It’s normal to have the same amount as the taxable amount in Box 2a, when Box 2b is checked saying “taxable amount not determined.”  Pay attention to the distribution code in Box 7. It’s code 2 if you’re under 59-1/2 and code 7 if you’re over 59-1/2. The IRA/SEP/SIMPLE box is also checked.

Right after you enter the 1099-R, you will see the refund number drop. Here we went from a $1,540 refund to $264. Don’t panic. It’s normal and temporary. The refund number will come up when we finish everything.

We did not inherit this IRA.

It asks you about Roth conversion. Answer Yes to conversion and enter the converted amount.

You are done with this 1099-R. Repeat if you have another 1099-R. If you’re married and both of you did a Backdoor Roth, pay attention to whose 1099-R it is when you enter the second one. You’ll have problems if you assign both 1099-R’s to the same person when they belong to each spouse.

It asks you about the basis carried over from previous years. If you did a clean “planned” backdoor Roth every year, you can answer “No.” Answering “Yes” and entering all 0’s on the next page has the same effect as answering “No.” If you have gone back and forth before you found this guide, some of your previous answers may be stuck. Answering “Yes” here will give you a chance to review and correct them. If you have a basis carryover on line 14 of Form 8606 from your previous year’s tax return, answer Yes here and enter it on the next page.

The values should be all 0 if you did a “clean” planned backdoor Roth. If you had a small amount of earnings posted to your Traditional IRA after the conversion and you didn’t convert the earnings, enter the account’s value in the second box from your year-end statement.

We didn’t take any disaster distribution.

Now continue with all other income items until you are done with income. Your refund meter is still lower than it should be but it will change soon.

Traditional IRA Contribution

Find the IRA Contributions section under the “Deductions / Credits” menu.

Answer Yes to the first question. An excess contribution means contributing more than you’re allowed to contribute. We didn’t have that.

Enter the amount you contributed to the Traditional IRA in the first box. Leave the answer to “Did you switch or recharacterize” at No. We converted. We didn’t recharacterize. We didn’t repay any distribution either.

Your refund number goes up again! It was a refund of $1,540 before we started. It went down a lot and now it’s back to $1,496. The $44 difference is due to paying tax on the $200 earnings before we converted to Roth.

We didn’t contribute to a SEP, solo 401k, or SIMPLE plan. Answer Yes if you did.

Withdraw means pulling money out of a Traditional IRA back to your checking account. Converting to Roth is not a withdrawal. Answer ‘No‘ here.

All values are zero when you did a “clean” planned Backdoor Roth. If you had a small amount of earnings posted to your Traditional IRA after you converted and you didn’t convert the earnings, enter the balance of your Traditional IRA from your year-end statement in the second box.

It tells us we don’t get a deduction because our income was too high. We know. That’s why we did the Backdoor Roth.

Taxable Income from Backdoor Roth

After going through all these, let’s confirm how you’re taxed on the Backdoor Roth. Click on the three dots on the top right above the IRA Deduction Summary and then click on “Preview Return.”

Look for Line 4 in Form 1040.

It shows $7,200 in IRA distributions in line 4a and only $200 is taxable in line 4b. If you are married filing jointly and both of you did a backdoor Roth, the numbers here will show double.

Tah-Dah! You put money into a Roth IRA through the backdoor when you aren’t eligible to contribute to it directly. You pay tax on a small amount of earnings if you waited between contributions and conversion. That’s negligible relative to the benefit of having tax-free growth on your contributions for many years.

Troubleshooting

If you followed the steps and you are not getting the expected results, here are a few things to check.

Conversion Is Taxed

If you don’t have a retirement plan at work, you have a higher income limit to take a deduction on your Traditional IRA contribution. FreeTaxUSA will give you the deduction if it sees that you qualify. It doesn’t give you the choice of making it non-deductible. You see this deduction on Schedule 1, Line 20.

Taking this deduction also makes your Roth IRA conversion taxable. The taxable Roth IRA conversion and the deduction for your Traditional IRA contribution offset each other to create a wash. This is normal and it doesn’t cause any problems when you (or your spouse) indeed don’t have a retirement plan at work.

If you actually have a retirement plan at work, the software didn’t see it. Whether you have a retirement plan at work is marked by the “Retirement plan” box in Box 13 of your W-2.

Maybe you forgot the check it when you entered the W-2. Double-check the “Retirement plan” box in Box 13 of your (and your spouse’s) W-2 entries in FreeTaxUSA to make sure they match the W-2.

Self vs Spouse

If you are married, make sure you don’t have the 1099-R and the IRA contribution mixed up between yourself and your spouse. If you inadvertently assigned two 1099-Rs to one person instead of one for you and one for your spouse, the second 1099-R will not match up with a Traditional IRA contribution made by a spouse. If you entered a 1099-R for both yourself and your spouse but you only entered one Traditional IRA contribution, you will be taxed on one 1099-R.

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How To Report 2024 Mega Backdoor Roth In H&R Block (Updated)

[Updated on January 29, 2025 with screenshots from H&R Block Deluxe downloaded software for the 2024 tax year.]

A Mega Backdoor Roth is different from a regular Backdoor Roth. It’s done by making non-Roth after-tax contributions to a 401k-type plan before moving it to the Roth account within the 401k-type plan or taking the money out (with earnings) to a Roth IRA.

It’s a great way to put additional money into a Roth account without having to pay much additional tax. Not all plans allow non-Roth after-tax contributions but some estimated that 40% of people can do it.

Suppose you did a Mega Backdoor Roth last year. You should have received a 1099-R form from your 401k plan provider. You’ll need to account for it on your tax return. Here’s how to do it in H&R Block tax software. If you use TurboTax or FreeTaxUSA, please see:

How To Enter Mega Backdoor Roth in TurboTax (Updated)How to Enter Mega Backdoor Roth in FreeTaxUSA (Updated)Table of ContentsUse H&R Block DownloadWithin the Plan Or To Roth IRA1099-R EntriesRollover DestinationVerify on Form 1040Use H&R Block Download

The screenshots in this post are from H&R Block Deluxe downloaded software. The downloaded software is both less expensive and more powerful than the online version. A user reported getting an error from the online version of H&R Block in comment #8. The H&R Block downloaded software didn’t give that error.

If you haven’t paid for your H&R Block online filing yet, you can buy H&R Block downloaded software from Amazon, Walmart, Newegg, or Office Depot and switch to the downloaded software. If you’re already too far along with your entries, make this your last year of using the online version and switch to the downloaded version next year.

Within the Plan Or To Roth IRA

You can do the mega backdoor Roth in two ways — convert within the plan or withdraw to a Roth IRA. Converting within the plan is much easier, and many plans automate the process. Transferring to a Roth IRA also works. See the previous post Mega Backdoor Roth: Convert Within Plan or Out to Roth IRA?

Here’s the scenario we’ll use as an example:

You contributed $10,000 as non-Roth after-tax contributions to your 401(k). By the time you converted the money to the Roth account within the plan or transferred it to your Roth IRA, your contributions earned $200. You converted $10,200 to your Roth account.

I’m using 401(k) as a shorthand. It works the same in a 403(b). If you did a split rollover — after-tax contributions to a Roth IRA and the earnings to a Traditional IRA — and the plan administrator issued one 1099-R for your two rollovers, you’ll need to split your 1099-R into two. See One 1099-R Form for Two Rollovers in TurboTax and H&R Block.

1099-R Entries

Go to Federal -> Income -> IRA and Pension Income (Form 1099-R). You can import the 1099-R or enter it manually. I’m showing manual entries.

Our 1099-R is a normal 1099-R. Enter the numbers from your 1099-R as-is. Ours looks like this:

The gross amount converted to the Roth account shows up in Box 1. The earnings are in Box 2a. If you didn’t have earnings in your rollover, Box 2a is zero. “Taxable Amount Not Determined” under Box 2b is left unchecked. The amount of your non-Roth after-tax contributions shows in Box 5. Box 7 has code G.

The IRA/SEP/SIMPLE box in Box 7 on your 1099-R should NOT be checked.

We’re not a retired public safety officer.

Rollover Destination

The Roth 401k account is officially a “designated Roth account” in the plan. Choose “Designated Roth account” if you converted within the plan. Choose “Roth IRA” if you took the money out of the plan to your Roth IRA.

That’s it. It’s as simple as that.

Verify on Form 1040

Now we verify we’re taxed only on the $200 in earnings, and not on the $10,000 non-Roth after-tax contributions.

Click on “Forms” in the top menu bar. Double-click on “Form 1040 and Schedules 1-3” in the forms list and click on “Hide Mini WS.”

Scroll down to find Line 5. The gross amount transferred to the Roth account shows on Line 5a. Line 5b shows you’re taxed only on the earnings. If you didn’t have earnings, Line 5b will be zero.

When you’re done looking at the form, close the forms window to get back to the interview.

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Split-Year Backdoor Roth IRA in H&R Block, Year 2

Updated on January 28, 2025, with updated screenshots from H&R Block Deluxe download software for the 2024 tax year. If you use TurboTax or FreeTaxUSA, see:

Split-Year Backdoor Roth IRA in TurboTax, 2nd YearSplit-Year Backdoor Roth IRA in FreeTaxUSA, 2nd Year

The previous post Split-Year Backdoor Roth in H&R Block, 1st Year dealt with contributing to a Traditional IRA for the previous year or recharacterizing a previous year’s Roth IRA contribution as a Traditional IRA contribution. This post handles the conversion part.

We cover two example scenarios. Here’s the first scenario:

You contributed $6,500 to a Traditional IRA for 2023 in 2024. The value increased to $6,700 when you converted it to Roth in 2024. You received a 1099-R form listing this $6,700 Roth conversion.

You should’ve already reported the contribution part on your 2023 tax return by following Split-Year Backdoor Roth in H&R Block, 1st Year. The IRA custodian sent you a 1099-R form for the conversion in 2024. This post shows you how to put it into H&R Block tax software.

Here’s the second example scenario:

You contributed $6,500 to a Roth IRA for 2023 in 2023. You realized that your income was too high when you did your 2023 taxes in 2024. You recharacterized the Roth contribution for 2023 as a Traditional contribution before April 15, 2024. The IRA custodian moved $6,600 from your Roth IRA to your Traditional IRA because your original $6,500 contribution had some earnings. The value increased again to $6,700 when you converted it to Roth in 2024. You received two 1099-R forms, one for $6,600 and another for $6,700.

You should’ve already reported the recharacterized contribution on your 2023 tax return by following Split-Year Backdoor Roth in H&R Block, 1st Year. The IRA custodian sent you two 1099-R forms, one for the recharacterization, and the other for the conversion. This post shows you how to put both of them into H&R Block tax software.

If you contributed for 2024 in 2025 or if you recharacterized a 2024 contribution in 2025, you’re still in the first year of this journey. Please follow Split-Year Backdoor Roth in H&R Block, 1st Year. If you recharacterized your 2024 contribution in 2024 and converted in 2024, please follow Backdoor Roth in H&R Block: Recharacterized in the Same Year.

If neither of these example scenarios fits you, please consult our guide for a normal “clean” backdoor Roth: How to Report Backdoor Roth in H&R Block Tax Software.

If you’re married and both you and your spouse did the same thing, you should follow the steps below once for yourself and once again for your spouse.

Table of ContentsUse H&R Block Download Software1099-R for Recharacterization1099-R for ConversionMore QuestionsClean Backdoor Roth On TopDid Not RecharacterizeBasisTaxable IncomeTroubleshootingFresh StartConversion Is TaxedUse H&R Block Download Software

The screenshots below are taken from H&R Block Deluxe downloaded software. The downloaded software is more powerful and less expensive than online software. If you haven’t paid for your H&R Block Online filing yet, consider buying H&R Block download software from Amazon, Walmart, Newegg, and many other places. If you’re already too far in entering your data into H&R Block Online, make this your last year of using H&R Block Online. Switch over to H&R Block download software next year.

1099-R for Recharacterization

This section only applies to the second example scenario. If you didn’t recharacterize (the first example scenario), please skip this section and jump over to the conversion section.

We handle the 1099-R form for recharacterization first. This 1099-R form has a code ‘R’ in Box 7.

Click on Federal -> Income. Scroll down and find IRA and Pension Income (Form 1099-R). Click on “Go To.”

Click on Import 1099-R if you’d like. I show manual entries with “Enter Manually” here.

Just a regular 1099-R.

The amount that moved from your Roth IRA to your Traditional IRA is shown in Box 1. It’s $6,600 in our example. The taxable amount in Box 2a is zero. The two checkboxes in Box 2b aren’t checked. The code in Box 7 is “R.”

The “IRA/SEP/SIMPLE” box under Box 7 may or may not be checked. It’s not checked in our sample 1099-R.

Not a retired public safety officer.

We like to hear that.

You’re done with the first 1099-R form. Click on “Enter Manually” to add the second one if you don’t already have both 1099-R forms imported.

1099-R for Conversion

The 1099-R for conversion has either a code “2” or code “7” in Box 7.

The second 1099-R form is also a regular 1099-R.

It’s normal to see the conversion reported in Box 2a as the taxable amount when Box 2b is checked to say “Taxable amount not determined.” The code in Box 7 is ‘2‘ when you’re under 59-1/2 or ‘7‘ when you’re over 59-1/2.

The “IRA/SEP/SIMPLE” box is checked on this 1099-R form for the conversion.

Did not inherit it.

This is a very important question. Read carefully. Answer No, because you converted, not rolled over.

We don’t have these repaid withdrawals treated as rollovers.

Now answer Yes, you converted.

We converted all of it in our example.

Answer Yes because your contribution for the prior year was your basis.

The refund in progress drops a lot at this point. Don’t panic. It’s normal and only temporary. It will come back up after we continue.

You are done with this 1099-R. Repeat the above if you have another 1099-R. If you’re married and both of you converted to Roth, pay attention to whose 1099-R it is when you enter the second one. You’ll have problems if you assign both 1099-Rs to the same person when they belong to each spouse. Click on Finished when you are done with all the 1099-Rs.

More Questions

H&R Block has a few more questions.

Answer Yes if you did a “clean” backdoor Roth in 2024 on top of converting your 2023 contribution, in other words, you also contributed to a Traditional IRA for 2024 in 2024 and converted both your 2023 contribution and your 2024 contribution in 2024. Your 1099-R includes converting two year’s worth of contributions in a single year.

If you answered “Yes” to the previous question, H&R Block will wait until you also enter your 2024 contribution. Your refund meter is still depressed but don’t worry.

If you answered “No” to the previous question because you didn’t contribute to a Traditional IRA for 2024, the software will ask you for your basis. Get that number from Line 14 of your Form 8606. It’s $6,500 in our example.

Clean Backdoor Roth On Top

The conversion part of the clean backdoor Roth is already included in the 1099-R form we just completed. Now we do the contribution part.

Click on Federal -> Adjustments. Find IRA Contributions. Click on “Go To.”

Answer “Yes” because you contributed to a Traditional IRA in 2024 for 2024.

Check the box for Traditional IRA.

You know you don’t get a deduction due to income. Enter anyway. If you don’t see this question, it means the software thinks you’re eligible for a deduction. You can’t decline the deduction.

Enter your contribution amount. We contributed $7,000 in our example.

Did Not Recharacterize

This is important. Answer No because you didn’t recharacterize. You converted to Roth.

No excess contribution.

Basis

H&R Block should import this from last year’s data but it doesn’t. Get it from last year’s Form 8606 Line 14. If you didn’t have a Form 8606 last year because the software gave you a deduction on Schedule 1 Line 20, your basis is zero. It’s $6,500 in our example.

This is another important question. If you emptied all your Traditional IRA and you don’t have any SEP or SIMPLE IRAs, technically you can answer Yes and skip some questions. The safer bet is to answer No and go through the follow-up questions. If you’ve been going through these screens back and forth, you may have put in some incorrect answers in a previous round. You will have a chance to review and correct those answers only if you answer No.

Leave the boxes blank when you contributed for 2024 in 2024.

The box should be blank or zero when you emptied all your Traditional IRAs after converting them to Roth. If you had a few dollars of earnings after you converted and you left them in the account, get the value from your year-end statements and put it here. The software will apply the pro-rata rule.

0 in Traditional IRA deduction means it’s nondeductible. Click on Next. Repeat for your spouse if both of you contributed to a Traditional IRA.

Now the refund meter should go back up after you enter the Traditional IRA contributions.

Taxable Income

You’re done with the 1099-R forms. Let’s look at how they show up on your tax return. Click on Forms on the top and open Form 1040 and Schedules 1-3. Click on Hide Mini WS. Scroll down to lines 4a and 4b.

Line 4a shows the amount on your 1099-R for the Roth conversion. Line 4b shows the taxable amount, which is the earnings between the time you contributed to your Traditional IRA and the time you converted it to Roth. The taxable amount would be zero if you didn’t have any earnings. The taxable amount can be off by a few dollars due to rounding.

Form 8606 shows these for our example:

Line #Amount17,000 (only if you also did a “clean” backdoor Roth on top, otherwise blank.)26,5003The sum of Line 1 and Line 25The same as Line 313The same as Line 3 (or close to it due to rounding)14016The amount on your 1099-R with a code 2 or 717The same as Line 3 (or close to it due to rounding)18The difference between Line 16 and Line 17Form 8606Troubleshooting

If you followed the steps and you are not getting the expected results, here are a few things to check.

Fresh Start

It’s best to follow the steps fresh in one pass. If you already went back and forth with different answers before you found this guide, some of your previous answers may be stuck somewhere you no longer see. You can delete them and start over.

Click on Forms and delete IRA Contributions Worksheet, 1099-R Worksheet, and Form 8606. Then start over by following the steps here.

Conversion Is Taxed

If you don’t have a retirement plan at work, you have a higher income limit to take a deduction on your Traditional IRA contribution. If you have a retirement plan at work but your income is low enough, you are also eligible for a deduction on your Traditional IRA contribution. The software gives you the deduction if it sees that your income qualifies. It doesn’t give you the choice of making it non-deductible.

Part of your conversion could be taxed because you took a deduction on the Traditional IRA contribution last year or this year. You see whether you took a deduction by looking at Schedule 1 Line 20 on last year’s and this year’s tax returns.

The taxable Roth IRA conversion and the deduction for your Traditional IRA contribution offset each other to create a wash. This is normal and it doesn’t cause any problems when you indeed don’t have a retirement plan at work or when your income is sufficiently low.

If you actually have a retirement plan at work, maybe the software didn’t see it. Whether you have a retirement plan at work is marked by the “Retirement plan” box in Box 13 of your W-2.

Maybe you forgot to check it when you entered the W-2. Double-check the “Retirement plan” box in Box 13 of your (and your spouse’s) W-2 entries to make sure it matches the W-2.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

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