I followed the "backdoor ROTH IRA" instructions exactly, but they just aren't working. TurboTax is showing my $7000 back door conversion as taxable. I'm mystified as to why it isn't working... I have done this many years now but for some reason this year (2022 taxes) it just is not working. I can't find any errors in what I entered. Any ideas as to what I should check? I did the conversion entirely within 2022 and I had no traditional IRA basis at the start or end of 2022.
I have an inherited traditional IRA at a different brokerage than I have my own IRA. When it asks "what was the value of your traditional IRA at the end of 2022" I SHOULD enter the inherited IRA's value, right?
Worst case is I just overpay my taxes by a few thousand dollars, but would be very annoying to have that as my best solution. In fact, my IRA slightly dropped in value during the time it was in a traditional IRA, so that should count as a small loss. Is it possible to just go in and manually edit the tax forms TurboTax produces to correct this? I believe I just need to edit line 4b of Form 1040? Is that a reasonable solution?
inherited IRA must be treated separately.
If you include it's value then you will have problems.
Inherited IRAs cannot be converted.
The inherited traditional IRA is at a separate brokerage. I compared all the forms from this year with last year and found that the difference was this time when it asked "what is the total value of all your traditional IRA's at the end of (the tax year)" last year I put 0. This year I included the inherited IRA. That seems to have been the problem.
However, now I wonder if I was doing it right before? It appears the question about "total value" gets asked in two separate places. I wonder if in one place the correct answer was "0" (because it was not involved with the Roth conversion) and in the other place I should NOT be putting in zero.
I guess time to experiment. I will report back what happens!
Looks like the correct answer is to treat the inherited IRA as something else, not to report its total value. If I try to put that info in, TurboTax decides my IRA conversion to Roth is fully taxable.
An inherited IRA can be converted if it's inherited from your spouse.
If you elect to treat you spouse's IRA as your own, it is no longer an inherited IRA.
Any basis there becomes part of your basis.
@geojoetx2 who did you inherit the IRA from? spouse? someone else?
Parent. Not Spouse. It shows up as an inherited IRA in the year-end tax forms I get.
Also, I was not trying to convert the inherited IRA. Just my own.
"Looks like the correct answer is to treat the inherited IRA as something else"
An inherited IRA must be treated separately, i.e. it is not involved in your IRA conversion.