In 2018, I had Schwab convert $44,000 from my Traditional IRA to my Roth IRA. Schwab filed a 1099-R for the conversion. A total of $4,400 (10%) was sent to IRS and $440 sent to State as withholding tax, making a total of $39,160 converted into the Roth IRA.
But Turbo Tax is calling this an "Excess Contribution" for 2018, and says the IRS will levy severe fines for this conversion. What am I missing? The 1099-R form has been uploaded successfully into TurboTax. I followed the step-by-step instructions. But TurboTax doesn't know that this $39,160 was a conversion.
On an IRA the custodian is not required to withhold taxes (not one penny) unless you specifically requested it with something like a W-4 you may have filled out at some time in the past for this account.
The $4,840 was not converted, since it was sent to the IRS and state, and that amount "is" taxable income on your 2018 return. So unless you personally made up the difference with money out of your pocket, you have a $39.160 conversion that "is" taxable income, and the $4,840 paid to the state and IRS is also taxable income.
So the entire $44K is taxable income on your 2018 tax return, and take note that will increase your AGI for the tax year, potentially putting you into a higher tax bracket.
Now, based on my experience, correcting an already entered 1099-R doesn't work for whatever reason. It just makes things worse. So you need to delete the 1099-R. Work through the 1099-R section and after you delete it, continue working it through until you get to a screen with a DONE button on it. Your deletion doesn't "stick" until you click that DONE button.
Now re-enter the 1099-R anew making sure you enter it perfect the first time. Then it's vitally important you pay attention to the screens that will follow the 1099-R data entry screen so that you make the correct selections.
As a reminder (mainly for others reading this) a ROTH IRA is funded with "AFTER" tax money. So when you convert a Traditional IRA to a ROTH IRA, every penny of the converted amount is taxable income in the tax year the conversion takes place.
Please make sure you only entered the information in the 1099-R income section and not in the contribution section (Deduction & Credits).
Please be aware that a conversion from Traditional to Roth IRA will result in the taxable income unless you had non-deductible contributions in the trad. IRA.
To enter the 1099-R distribution/conversion:
- Click "Personal Income" on the top
- Click "I'll choose what to work on"
- Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)"
- Answer "Yes" to the question "Did You Have Any of These Types of Income?"
- Click "I'll Type it Myself"
- Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
- Click "Continue" and enter the information from your 1099-R
- Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
- Then choose “did a combination of rolling over, converting or cashing out.”
- Enter "$39,160" in "Amount converted to Roth IRA account"
Which version of TurboTax to purchase (Deluxe, Premier, etc).
I have Traditional 401k converted into Roth 401k and also few stocks purchase and sold.
If you are using online software, you may start in the Free version if you wish. That way, if your situation requires a paid version of TurboTax, you will be prompted and then can be upgraded to the proper version of the program.
If using desktop software, any version Deluxe and above is capable of handling all personal tax return situations. However, Premier and Home and Business provide advantages for those who are involved with stock trades or have their own business.
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