See the calculations on Form 8606. Traditional IRA contributions that you make that are nondeductible create after-tax basis in your traditional IRAs. The net basis that you had contributed to your traditional IRAs by year-end is used in combination with your total year-end balance in traditional IRAs and the amounts of any traditional IRA distributions or Roth conversions to determine what amount of your basis is applies to those traditional IRA distributions or Roth conversions to make that portion of the distribution or conversion nontaxable. By indicating that you made a nondeductible contribution for 2016 after year-end, that contribution does not add to your year-end basis.
Initially TurboTax assumes that your nondeductible contribution was made in 2016 and can be included in determining the taxable amount of your 2016 distributions and conversion. Once you tell TurboTax that the contribution was made in 2017 instead, TurboTax adjusts the calculations on Form 8606 to reduce the proportion of basis to balance, reducing the amount of the distribution that is nontaxable, increasing the amount of tax liability that results from the distribution or conversion. Whatever amount of basis was not able to be used against your 2016 distributions and conversions carries forward to be applied to future traditional IRA distributions and Roth conversions. (Note that distributions and conversions are reportable on the tax return for the year *in* which the distribution or conversion occurs.)
If you make an eligible nondeductible traditional IRA contribution for 2016 in 2017, your tax liability for 2016 will be the same as if you had made no such contribution.
