Yes, the 401(k) rollover of pre-tax funds complicated your tax situation, and part of your conversion will be taxable as shown on line 4b of Form 1040.
The Backdoor Roth only works if your traditional/SEP/SIMPLE IRAs are empty. Since you had pre-tax funds from your 401k rollover in your traditional IRA the pro-rata rule applies. This means that with each distribution/ conversion, you will have a taxable and nontaxable part. You can see the remaining basis on line 14 of Form 8606, this basis can be carried forward. Therefore each distribution/conversion in the future will have a taxable and nontaxable part until the basis is all used.
If you plan to use the Backdoor Roth strategy in the future you might want to think about a reverse rollover where you rollover IRA money to a company plan, like a 401(k). Only pre-tax funds can be rolled from an IRA to a company plan. Therefore, you would isolate the basis and could start the Backdoor Roth procedure fresh. But it only works if your employer allows it, not all plans do.
You might want to look into both these articles for additional information: How to FIX Backdoor Roth IRA Screw-ups and When the Reverse Makes Sense: Benefits of a Reverse Rollover.
If you like I can review your return to verify your entries. You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Download:
- On your menu bar at the very top, click "Online"
- Select "Send Tax File to Agent"
- Click "Send"
- The pop-up will have a token number
- Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.
We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.
@tmnhall81
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