I've read many posts on this forum, but I'm still not clear on how to enter our situation. I appreciate the expert help.
We slightly exceed the Roth contribution income threshold (let us assume $250k for each year of 2019-21). We are both over 50 years of age. I participate in a 401(k) at my employer; my wife does not contribute to a workplace retirement plan. I believe we have been ineligible to deduct the IRA contributions due to our income level. If this is correct, then our IRA contributions are made with after-tax money--the funds below have been taxed once, except for the $8k gains I describe in my wife's traditional IRA, below. Given this, I question if the funds should be taxed in the 2021 conversion year, because they have already been taxed prior to contributing to the IRA. I admit my logic could be erroneous.
Myself:
In 2020, I contributed $14k for 2019 and 2020 traditional IRA contributions.
In 2021, I contributed $7k for a 2021 traditional IRA contribution.
In September 2021, I converted $21k to a Roth IRA.
The traditional IRA account balance at EOY 2021 was, let's say, $210k to use round numbers.
My wife:
In 2020, contributed $12k for 2019 and 2020 traditional IRA contributions.
In 2021, contributed $7k for 2021 traditional IRA contributions.
In September 2021, converted this $19k plus $8k of gains to a Roth IRA.
Her traditional IRA balance was zero at EOY 2021.
When I enter our two 1099-R forms into TT for our 2021 return, our taxes due increases by a steep $10k. While I could be wildly mistaken, I believe that we should be taxed only on the $8k of gains in my wife's traditional account upon conversion, because I believe the other converted funds have already been taxed.
I need help determining if I am mistaken, and then help entering in TT to correct this.
Thank you.
