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TIRA to backdoor Roth tax implications
2020 was the first year I ever had a traditional IRA (TIRA) . My financial advisor recommended that I start it in 2020 to convert it to a backdoor Roth IRA (I already had a Roth IRA).
My income in 2020 exceeded both the Roth contribution limit and the deduction for TIRA contribution limits. So, the money that went into the TIRA is post-tax dollars.
It appears that when I enter the 1099-R data into Turbotax, I am taxed on the amount that converted from TIRA to Roth IRA. But since I that TIRA contribution was pre-tax, this seems to tax the TIRA contribution a second time when it converts to Roth IRA.
Is that correct? Does that make sense to anyone?
I am beginning to think that my financial advisor gave me bad advice, for he explained when we did it that I would only be taxed on whatever gain occurred during the one day it was in the TIRA, which was pennies.
Thank you for your time and be well.
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Get your taxes done using TurboTax
Sounds like you failed to first enter the non-deductible Traditional IRA contribution in to the IRA contribution interview so it could be credited to you.
Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.
OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.
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Get your taxes done using TurboTax
Thank you for the information.
I tried that.
Now Turbotax say I owe a penalty for making an excess contribution to a Roth because my income was too high.
I am so confused as why a backdoor Roth is considered a good idea.
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Get your taxes done using TurboTax
@Cowboy1987 wrote:
Thank you for the information.
I tried that.
Now Turbotax say I owe a penalty for making an excess contribution to a Roth because my income was too high.
I am so confused as why a backdoor Roth is considered a good idea.
You DO NOT enter it as a *Roth* contribution. It is a *Traditional* IRA contribution that you converted to a Roth.
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Get your taxes done using TurboTax
Thank you.
I think I am confused by the differences between recharacterization and conversion. TT seems to imply that a back door Roth is a recharacterization since it occurred in the same year as the Traditional contribution, but the form from my broker says it is a conversion. TT handles a conversion without any penalty or additional tax language.