After-tax IRA conversion with 1099-R trigger taxable amount

[heoconxinhdep]

I have a complicated situation:

- On Feb 2, 2023, I made a 6k contribution with AFTER-TAX money for year 2022 (previous year)

- On Feb 7, 2023, I made a 6.5k contribution with AFTER-TAX money for year 2023

- On Feb 9, 2023, I made a Roth conversion with the 6k contributed on Feb 2

- On Feb 14, 2023, I made a Roth conversion with the 6.5k contributed on Feb 7

I received 1 form 1099-R and it shows Box 1 12.5k, Box 2a 12.5k, Box 2b Total Taxable Amount not determined checked, Box 7 distribution code 2 with IRA/SEP/SIMPLE box checked.

After I put this form into TurboTax, it trigger taxable amount even though all the contributed money is after-tax. Later when I choose the option “I did a combination of rolling over, converting, or cashing out money.” then it shows me that it will remove this 1099-R and ask me to separate it.

Q1: How do I do this separation correctly since this is technically both a rollover (move to another IRA) and a conversion (traditional to Roth) but I only receive 1 form 1099-R

Q2: Since I made contribution and rollover and conversion for year 2022 in 2023, do I need to make any amendment to my previous year return? If so, how do I do that in TurboTax since I only receive 1 form 1099-R 

Thank you very much for your help

[dmertz]

The nondeductible traditional IRA contribution made for 2022 was required to have been reported on Form 8606.  If you did not do so, you must amend.  The $6,000 on line 14 of that form carries forward to line 2 of your 2023 Form 8606.

The $12,500 of Roth conversions performed in 2023 are entirely reportable on your 2023 tax return on 2023 Form 8606.  There is nothing to separate.

[heoconxinhdep]

What I mean by separation is the Rollover and Conversion.  As of now, count that 12.5k as taxable income even though it is already after tax. How do I fix this?

[dmertz]

You have mentioned no rollover, only nondeductible traditional IRA contributions and Roth conversions.  By "rollover" did you mean the carryforward of your $6,000 of basis from 2022 to 2023?

The $6,000 nondeductible traditional IRA contribution was reportable on your 2022 Form 8606 and is the only part of this reportable on your 2022 tax return.  This Form 8606 should have $6,000 on lines 1, 3, and 14.  If your 2022 Form 8606 did not show this contribution, you must amend your 2022 tax return.

The $6,500 nondeductible traditional IRA contribution is reportable on 2023 tax return.  This will appear on line 1 of your 2023 Form 8606 to be added to $6,000 on line 2 (carried forward from line 14 of your 2022 Form 8606) producing $12,500 on lines 3.

The fact that your Roth conversion comprised two separate conversions is irrelevant because both conversions occurred in the same year.  The two conversions are reported as a single Roth conversion by entering the 2023 Form 1099-R, indicating that you moved the money to another retirement account and indicating that you converted the entire $12,500 to Roth.  $12,500 will appear on lines 8 and 16 and 17 of your 2023 Form 8606, resulting in $0 taxable on line 18.

[heoconxinhdep]

I see. So I must amend my 2022 tax return first to correct the 8606 form (I will need to enter this form manually right? or is there a way to do it in TurboTax?)

Then for year 2023, my 1099-R indicates Code 2 on box 7 (Early Distribution) since it's used for Roth conversion, I just need to indicate that it was moved into another retirement account (this is what I meant by "rollover": to roll/move a different account). Do I need to enter 8606 manually or just 1099-R

[dmertz]

When entering the code-2 2023 Form 1099-R into 2023 TurboTax, indicate that you moved the money to another retirement account and that you converted the entire amount to Roth.

If you have already started your 2023 tax return in TurboTax, be sure to click the Continue button on the page that lists the Forms 1099-R that you have entered, indicate that you made nondeductible contributions to your traditional IRAs, then enter the amount from line 14 of your 2022 Form 8606 that you will be filing as an amendment to your 2022 tax return.

No entries are made directly on Form 8606.  TurboTax prepares Form 8606 automatically based on your entries elsewhere as I have described.