Get your taxes done using TurboTax

To confirm, were all of your traditional IRAs empty after the conversion? If yes, then please follow these steps in TurboTax:

To enter the nondeductible contribution to the traditional IRA:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2022 Form 8606 line 14 (if you had a basis in the prior year)
10. On the "Tell us the Value of all of your Traditional IRA accounts" screen enter the value (should be $0 if all were empty after conversion)
11. On the "Your currently have a Penalty" screen don't enter anything as withdrawn.
12. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the Form 1099-R conversion: 

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue"
6. Answer "Yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2022 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

If you had $0 value on December 31, 2023 then TurboTax won't calculate the 6% penalty because it is calculated as the smaller of the excess contribution or the value on December 31, 2023. Therefore, you will not enter the excess amount as removed on the penalty screen and then you will have the full $7,000 basis (nondeductible contributions) on Form 8606 for the 2023 conversion.

You still have the $500 excess contribution in the Roth IRA and you will need to request the withdrawal of excess contribution plus earnings. You will receive Form 1099-R for this distribution and the earnings will be taxable.