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Level 3

Seems my non-deductible IRA contribution was not recognized? (Is this a software technical problem or whatever?)

Hi everyone, 

 
I'm filing with TurboTax and here I have an issue I guess that might get me taxed twice for my non-deductible IRA contribution.  
 

I started making contribution to my traditional IRA account since 2017. 

  

I made a first-time non-deductible contribution of $5,500 (all was non-deductible) to my IRA account in the calendar year of 2018 

, and then did a full Roth conversion (including previous year’s deductible contribution) within the same financial institution. And the tax year of 2018 is the first time I need to file a Form 8606.  

  

And therefore, my IRA balance was zero on December 31 2018 as shown on the account statement.  

  

I only have one IRA account and one Roth IRA account as well.  

  

When I worked through the "Wages & Income" section,I observed that the income tax was imposed on the full distribution/conversion amount, despite there was non-deductible portion included.  

 

And now I’m going through ‘Deductions & Credits’ section, and onto the ‘Tell us the value of all your traditional IRA accounts’ page.  

The instruction reads:   

 ‘Enter or verify the value ending balance amount) of all of your traditional IRA accounts on December 31, 2018. This information is sent by mail on Form 5498.  

‘Include any IRA contributions you made or will make in 2019 for 2018.  

‘Include any IRA distributions you made in 2017. The amount you enter must be at least the amount of your distributions.’  

 
Since I’m still missing a Form 5498 yet, here I'm inputting the value shown on my IRA's December statement which is zero.

  

My concern is: when I enter a zero as basis for the year, how could TurboTax let IRS know that there was a non-deductible portion of my distribution/conversion?

 

Yes the TurboTax software has got it  that the $5,500 IRA contribution is non-deductible as I'm working through the ‘Deductions & Credits’  section, but it seems the amount shown on "Federal Refund (in progress) " doesn't change a bit, probably indicating that I'm still imposed income tax on the full converted amount?

 

Am I being taxed twice on my after-tax money?  

 

1 Comment
Level 11

Seems my non-deductible IRA contribution was not recognized? (Is this a software technical problem or whatever?)

if I follow your post correctly, 

 

a) there was a $5500 non-deductible IRA contribution and since it was non-deductible, the expectation should be that there is no impact on taxes for this contribution.  Do you agree? 

 

b) then you rolled that $5500 plus the prior years' deductible contribution from the Traditional IRA to a Roth.  Taxes should have gone UP because of the deductible dollars (zero basis) that were moved to the Roth.  There would also have been a 10% penalty on that conversion if you are under 59.5 years old (are you over or under 59 1/2? ),. Do you agree?  

 

c) Did you receive a form 1099-R and input that into TT to reflect the distributions out of the Traditional IRA? Did Box 1 and 2a adequately reflect what the gross distribution was and what the taxable portion was? 

 

d) Form 5498 is NOT to be reported by You. It is a form for the trustee only.  See link below and read the very first line of the overview.

https://turbotax.intuit.com/tax-tips/investments-and-taxes/what-is-irs-form-5498-ira-contributions-i...

 

<<When I worked through the "Wages & Income" section,I observed that the income tax was imposed on the full distribution/conversion amount, despite there was non-deductible portion included.  >>

 

E) why do you think this is true?  What is on Line 1 and 2a of Form 1099? 

 

<<My concern is: when I enter a zero as basis for the year, how could TurboTax let IRS know that there was a non-deductible portion of my distribution/conversion?>>

 

F) look at Form 1099 - boxes 1 and 2a - that is where TT is picking up what the non-deductible portion is .

 

does that help any? does it resolve your questions? if no, please restate the remaining concerns.