Converting nondeductible contributions of traditional IRA to Roth IRA

[MarilynG1]

Doing a backdoor Roth conversion is a two-step process.

Step 1: Enter the Non-Deductible Contribution to a Traditional IRA

1. Sign in to your TurboTax account
2. Open or continue to your return if it’s not already open
3. Select the Federal Taxes tab (this is Personal Info in TurboTax Home & Business), then Deductions & Credits
4. Select I'll choose what I work on
   • On the list of sections, locate Retirement & Investments
   • Then select Start or Update next to Traditional & Roth IRA Contributions
5. Check the box for Traditional IRA and Continue
6. Answer Yes to Did you contribute to a traditional IRA?
7. Answer No to Is This a Repayment of a Retirement Distribution?
8. On the Tell Us How Much You Contributed screen, enter the amount contributed and Continue
9. Answer No on the screen Did You Change Your Mind?, then answer the questions on the following screens
10. When you reach the Choose Not to Deduct IRA Contributions screen, select Yes, make part of my IRA contribution nondeductible, enter the amount you contributed, then select Continue. If none of your contribution can be deducted, you will not see the option to make part of it nondeductible. Instead, the full amount of your contribution will automatically be nondeductible.

Step 2: Enter the Conversion from a Traditional IRA to a Roth IRA

1. Select Wages & Income, then I'll choose what I work on
2. In the list of sections, locate Retirement Plans and Social Security, then select Start or Update next to IRA, 401(k), Pension Plan Withdrawals (1099-R)
3. Answer Yes to Did you have any of these types of income in 2022? and Continue
   • If you land on the Your 1099-R Entries screen instead, select Add Another 1099-R
4. Select how you want to enter your 1099-R (import or type it in yourself) and follow the instructions
5. Answer No to Did You Inherit This IRA?
6. Answer None of this distribution was transferred to charity
7. Select I moved the money to another retirement account (or returned it to the same retirement account) on the What Did You Do With The Money From This Payer? screen
8. Select I did a combination of rolling over, converting, or cashing out the money. Then, enter the full amount in the box next to Amount converted to a Roth IRA account and Continue

Click this link for more info and screenshots. 

[Monroe08]

@MarilynG1 that thread did not work for me. In my scenario I put the maximum of $6k nondeductible contribution’s to traditional IRA and then converted to Roth IRA for both 2021 and 2022 in January of 2022. I also did this again in January of 2023 and converted to Roth for the 2023 calendar year. When I got my 1099-R it showed roughly $23k for boxes 1 and 2a, box 2b has both boxes checked and box 7 had code 2. 

so the first step in that other thread I responded with $6k because that’s what I contributed for 2022. But my 1099-R reflects and entirely different value given the contributions I made for 2021, 2022 and 2023 (plus gains??). So step 2 doesn’t match the $6k contributions from step 1 and I’m getting poor results from TurboTax because of it.

[MarilynG1]

Enter your 1099-R as reported, and this will not be taxable with Code 2.  

You will come to a question asking if you 'tracked non-deductible contributions', say Yes and enter your IRA basis as of 12/31/2021 (last Form 8606 filed).

Then enter your Basis as of 12/31/2022  (which may be $0 if you indicated you converted your 2022 6K contribution to Roth, and 23K was the 2021 basis).  

Basically you are trying to get the conversion of 23K to show on Form 8606 and the correct Basis showing for your Non-Deductible IRAs.  No tax impact.

If you're using TurboTax Desktop, you can make your entries directly on Form 8606 in Forms mode. 

Here's more info on Form 8606.

[Monroe08]

@MarilynG1 forgive me, you clearly have a better handle on this than I do.

im not understanding how the basis for 2021 could be anything other than zero given 2021 was the first year I took non deductible funds and immediately converted everything to Roth IRA. Looking at the 8606 form for 2022 it says to use line 14 from 2021s 8606 form which was zero, and so I get a total basis of zero for 2022 as well. Right?

how am I to show any total basis other than zero, let alone the $23k?

is it possible to do google meets or zoom call to walk through all of this?

[AnnetteB6 · Accepted solution]

The basis for your Traditional IRA is the total non-deductible contributions that were made to the account.  This does not include any earnings that the account has accumulated since money was contributed to the IRA.  

So, if you actually contributed $6000 for 2021 and $6000 for 2022 during the calendar year of 2022, then your basis as of December 31, 2021 would be $0 since there was nothing in the account at that time.  The $6000 non-deductible contribution for 2021 should have been reported on your 2021 tax return that you filed in early 2022.  The $6000 non-deductible contribution that you made for 2022 needs to be reported on your 2022 tax return that you are filing now.  

Based on what you have shared, your total basis should stand at $12,000 for the Traditional IRA, assuming no non-deductible contributions were made prior to 2021.  That means that the difference in what you converted (roughly $23,000) and your basis constitutes earnings made in the Traditional IRA account between the time the money was contributed and converted to the Roth IRA.  This amount will be taxable on your 2022 return.

The non-deductible contribution that was made in early 2023 will be reported on your 2023 tax return.  You should also receive a 2023 Form 1099-R to report the 2023 distribution from the Traditional IRA and subsequent conversion to Roth IRA.

On a side note -- the users here in Community do not have access or the ability to contact you through Zoom or other means.  If you need further assistance, take a look at the following TurboTax help article:  What is the TurboTax phone number?

@Monroe08