Quick tip for anyone doing backdoor Roth conversions: Convert IMMEDIATELY after contributing to minimize any gains in the traditional IRA. I literally do the conversion the same day or next day after the contribution. The reason is that any earnings that happen between contribution and conversion are taxable in the year of conversion. By converting immediately, you'll have minimal or zero earnings to report, making your tax situation much simpler.

One thing to keep in mind when filing your 2023 Form 8606 is that you'll need to report your contribution on Line 1 (nondeductible contributions for 2023) and Line 14 (your total basis in traditional IRAs). Since this is your first backdoor Roth and you had no prior IRA balance, your basis will simply be the $6,500 you contributed. When you file your 2024 return next year, you'll report the conversion on Part II of Form 8606. The good news is that since you converted immediately after contributing, you should have little to no taxable income from the conversion - just make sure to report any small earnings that may have occurred between contribution and conversion. Also, double-check that your IRA custodian sends you the correct tax forms. You should receive a Form 5498 showing your 2023 contribution and a Form 1099-R showing your 2024 conversion. Keep these with your tax records since they support your Form 8606 filings.

Just to add some clarity since there still seems to be confusion: Form 1096 = A transmittal form (cover sheet) that businesses use when sending copies of information returns (like 1099s) to the IRS. You only need this if you paid contractors and need to report those payments. Schedule C = The form self-employed people use to report business income and claim expenses. This is part of your personal tax return. If you're self-employed and trying to deduct expenses, you need Schedule C, not Form 1096. TurboTax definitely handles Schedule C - it's one of the most common forms for self-employed individuals.

TurboTax actually has a good system for handling self-employment income and expenses. When you start the process, make sure you indicate that you have self-employment income. It will then guide you through the Schedule C section where you can enter all your business income and expenses. If you're not seeing this section, you might need to upgrade to the Self-Employed version of TurboTax. The basic versions don't always include Schedule C preparation.

Quick question - has anyone used Free File Fillable Forms for dealing with 1099-R from life insurance? My tax software keeps crashing when I try to enter mine and I'm thinking of just doing it manually.

I'm dealing with a very similar situation right now with my uncle's policy, and what you're experiencing is unfortunately correct. Those 1099-R forms with code 4D indicate these were qualified retirement plans or annuities with life insurance components, not traditional standalone life insurance policies. The key difference is that with regular life insurance, you'd either receive no tax forms or maybe a 1099-MISC, and the death benefit would be completely tax-free. But when you get a 1099-R, it means the IRS considers this a distribution from a retirement account that happened to have life insurance features. The taxable amounts in box 2a ($16,500 and $39,000) represent portions that were never taxed - likely investment gains or employer contributions that grew tax-deferred. Even though it feels like "life insurance," the IRS treats it as inherited retirement funds. Unfortunately, TurboTax is calculating correctly. You might want to consult with a tax professional to see if there are any strategies to minimize the impact, like income averaging if it qualifies, but the basic tax liability is probably unavoidable. The insurance company rep was technically wrong - they should have clarified the difference between pure life insurance and these hybrid retirement products.

You mentioned this was your father-in-law's policy... was the policy originally in his name with your wife as beneficiary? Or was ownership transferred at some point? My uncle ran into a similar issue where my grandpa had transferred ownership of the policy to him years before death to help with estate planning, and that triggered the "transfer for value" rule someone mentioned above.

I'm so sorry you're dealing with this stress! Based on what others have shared here, it sounds like those accumulated dividends are likely the culprit. Life insurance death benefits are indeed tax-free, but any earnings or dividends that built up over time usually aren't. Here's what I'd recommend doing immediately: 1. Contact the insurance company and ask for all tax documents they should have sent you for 2021, including any 1099s 2. Request a detailed breakdown of exactly what made up that $280k payout 3. Don't panic about owing taxes on the full amount - it's probably just that $37k dividend portion I went through something similar when my mom passed and her whole life policy had accumulated cash value we didn't know about. Once we got the proper documentation from the insurance company, the actual tax owed was much less than what the IRS initially calculated. The key is getting the right forms to show exactly what portion is taxable versus what was the actual death benefit. Also, if you do owe taxes on the dividend portion, you can likely set up a payment plan with the IRS to make it more manageable. You've got this!

I'm so confused about HSA contribution limits. If I have family coverage for part of the year and then switch to individual coverage, how do I calculate my limit? Is it prorated somehow? Also, does anyone know if the HSA trustee reports the excess contribution to the IRS? Or is it only if you report it yourself when you file?

Just wanted to add my experience since I went through this exact situation last year! I also had the job change mid-year and exceeded my HSA contribution limit without realizing it. One thing that really helped me was keeping detailed records of everything - the original excess contribution, the withdrawal request, confirmation from the HSA provider, and all the tax forms. When I filed my taxes, having everything organized made it much easier to complete Form 8889 and Form 5329 correctly. Also, don't forget to check if your HSA provider charged any fees for processing the excess contribution withdrawal. Mine charged a $25 processing fee, which was annoying but still way better than paying the 6% excise tax every year if I had left the excess in the account. The key thing is you caught it relatively quickly and took action. Many people don't realize the mistake for years and end up paying that 6% penalty repeatedly. You're definitely on the right track!