Back Door Roth IRA Conversion

[myang]

Hello,

I follow the link below to enter a backdoor roth conversion I did in 2021. But somehow, I get a penalty on form 5329. I follow the guide step by step and run it a few times, no success. Any idea why?

https://ttlc.intuit.com/community/entering-importing/help/how-do-i-enter-a-backdoor-roth-ira-convers...

Thank you!

[DanaB27]

To verify, you had taxable compensation, like wages or self-employment income, to make the contribution to the traditional IRA? Also, you did not enter the Roth conversion as a Roth contribution, correct?

In what part of Form 5329 is the penalty calculated?

Please review the instructions below.

To enter the nondeductible contribution to the traditional IRA for 2021:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had nondeductible contributions before this tax year
10. If you had a basis in the Traditional IRA before then enter the amount.
11. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the 1099-R distribution/conversion: 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?"
12. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[myang]

Hello,

Thanks for your help.

The traditional IRA was from my previous employer and I rolled it to a traditional IRA a few years ago when I left the company. After that, no contribution.

I select Traditional IRA only, and did not select Roth, so I did not enter the Roth conversion as a Roth contribution

In Form 5329, basically it says I made excess contribution. It seems Turbotax did not connect the IRA contribution part to the Roth conversion, and it thinks that I made to the traditional IRA contribution only, so it is excess contribution.

I follow the instruction you shared and try it a few times, but still get the form 5329 issue ...

[DanaB27]

If you did not make a contribution to the traditional IRA in 2021 then please delete that entry. 

1. Click “Deductions &Credits” on the top
2. Click "I'll choose what to work on"
3. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
4. Deselect “traditional IRA”  and click continue
5. Confirm the deletion

You will only enter your 1099-R for the conversion with the steps mentioned above. Please be aware, conversions are taxable since you are moving pre-tax funds into an after-tax account.

@myang

[myang]

Thanks for your help! I think that makes a lot sense and it does fix the issue. In the end, I do pay more tax, but that is what I expected ...

Thank you!