For the previous 15 years, I have performed a backdoor Traditional to Roth IRA conversion, as I was over the income threshold to contribute directly to a Roth IRA. Every of those years, the backdoor conversion has not been taxed, with the exception of the $1 or $2 of interest income earned prior to the conversion. Every of those years, my year end Traditional IRA balance was $0 as I had not otherwise ever contributed to my Traditional IRA.
For 2025, I did the same backdoor conversation in January, leaving my Traditional IRA balance at $0 for most of the year. However, in November I changed jobs and rolled over my 401K into my Traditional IRA account. When I went to enter in the Traditional IRA balance for December 31, TurboTax is now saying that most of that $7,000 conversation is taxable. Is this correct? My understanding is that it should not be. If I put the ending balance as $0, my tax liability decreases and TurboTax only taxes the $1 in interest income earned prior to the conversion. I know that Form 5498 will be sent to the IRS, so I don't want to enter $0 for the December 31 value as it would trigger an audit.
For clarification, the 401K to IRA rollover is not being taxed by TurboTax, just the backdoor conversion.
