dmertz
Level 15

Retirement tax questions

I suspect that you have basis in nondeductible traditional IRA contribution and you made a traditional IRA distribution in 2019, perhaps a Roth conversion, that you have not yet mentioned here.  By rolling of the 401(k) to the traditional IRA in 2019 you have caused a substantial increase in your year-end balance in traditional IRAs that affects the calculation of the amount of your traditional IRA distribution that is nontaxable, substantially reducing the nontaxable amount of the distribution and substantially increasing the amount of basis that remains in your traditional IRAs to be applied to future traditional IRA distributions until you have no more money in traditional IRAs.  You can see the calculation on Form 8606.  Rolling a 401(k) over to a traditional IRA in the same year as the Roth conversion is a common pitfall for those trying to do a "backdoor Roth."

 

(The other possibility is that you have mistakenly also entered this rollover as a new retirement contribution under Deductions & Credits, resulting in your tax return reporting an excess contribution that you did not actually make.  The penalty is calculated on the lesser of the amount of the excess contribution or your year-end balance.  However, this particular question about your year-end balance is asked in a different part of the interview than the one you mentioned, so I doubt that this is the issue.)

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