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Stockmoose16
Returning Member

Backdoor Roth - Deducting with no deduction

I'm doing a backdoor roth in TT19.  My Form 8606 looks correct, as I contributed in 2019 for 2019. 

All boxes on my 8606 are"0," except boxes 1, 3, 5, 13, 16, 17 - all of which are "6000."

 

But for some reason, TT is giving me a deduction for the non-deductible IRA.  When I go through the "Deductions and Credits" section. I selected "traditional IRA." Then NO repayment. I entered $6,000 as my total traditional IRA contribution. "0" was contributed after Jan 1, 2020. I answered NO to "did you change your mind?" I answered NO to having Retirement plan coverage. I answered NO to excess IRA contributions. I answered YES to non-deductible IRA contributions. I answered "0" as the basis. Then I answered "YES" to make part of my IRA contribution non-deductible. I then entered $6,000 as the amount of my contribution to make non-deductible. Under my deduction summary, it says my IRA deduction is "0," which is correct.  But my Federal tax due goes down, which makes no sense.  If I click back and select, "No, I'll keep my deduction," my Federal tax goes up.  Why are my federal taxes going down with a "0" non-deductible IRA contribution, but going up when I keep my deduction?

3 Replies
macuser_22
Level 15

Backdoor Roth - Deducting with no deduction

You elected to make *part* of the contribution non-deductible and part deductible?

 

Is  there is an * (asterisk) next to line 15 on the 8606?  If so then the calculation are done on the Taxable IRA Deductions Worksheet rather then the 8606 form for partial deductions.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Stockmoose16
Returning Member

Backdoor Roth - Deducting with no deduction

Not sure I follow.  Yes, I selected part of my contribution, but I entered all $6000 that I contributed.

 

And yes, there is an asterisk on 15c on form 8606.

 

So did I do something wrong here?  Why would clicking "keep my deduction" increase my tax burden, while "make part of my IRA deductible" decrease my deduction?  If I "keep" the deduction, it should reduce my taxable income - except that I only qualify for a non-deductible IRA, which is why i'm doing a backdoor roth.

 

So what I'm asking is, when I get to the section that says "Do you want to make your IRA contributions nondeductible?" should I click "yes" or "no"? I would think it's yes, since I'm trying to create a non-deductible IRA that can be converted into a roth. I did this and added "$6,000" to the section that says "amount of your contribution to make nondeductible."  I do not understand why this is reducing my tax burden when it's non-deductible. In fact, the next screen says my IRA deduction is "0."

macuser_22
Level 15

Backdoor Roth - Deducting with no deduction


@Stockmoose16 wrote:

Not sure I follow.  Yes, I selected part of my contribution, but I entered all $6000 that I contributed.

 

And yes, there is an asterisk on 15c on form 8606.

 

So did I do something wrong here?  Why would clicking "keep my deduction" increase my tax burden, while "make part of my IRA deductible" decrease my deduction?  If I "keep" the deduction, it should reduce my taxable income - except that I only qualify for a non-deductible IRA, which is why i'm doing a backdoor roth.

 

So what I'm asking is, when I get to the section that says "Do you want to make your IRA contributions nondeductible?" should I click "yes" or "no"? I would think it's yes, since I'm trying to create a non-deductible IRA that can be converted into a roth. I did this and added "$6,000" to the section that says "amount of your contribution to make nondeductible."  I do not understand why this is reducing my tax burden when it's non-deductible. In fact, the next screen says my IRA deduction is "0."


The * on the 8606 just means that the calculation are on a different form for a partial deduction.  If you are trying to do a backdoor Roth then you should make the entire contribution non-deductible.

 

Here is my procedure for doing a "Back Door" Roth.

 

This so-called “back-door Roth” method ONLY works if you have NO OTHER Traditional IRA accounts.  If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself.  Only if you started with NO Traditional, SEP & SIMPLE IRA and ended up with a zero amount in ALL Traditional, SEP & SIMPLE IRA accounts will this Roth conversion not be taxable.

First you must enter your Traditional IRA contributions (if there were 2019 contributions).

IRA contribution
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),,
Retirement & Investments,
Traditional & Roth IRA contribution.

Be SURE to answer the follow up that the are choosing to make this contribution NON-DEDUCTIBLE - if that screen comes up. (DO NOT say that you moved (recharacterized) the money to a Roth) – this is a conversion, not a recharactorazition.

Then enter the 1099-R that shows the distribution.

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),,
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2019.     (Usually zero unless you also made a 2018 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2019 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2019, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.

Also see this TurboTax FAQ:
https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
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