Level 1

Solved

Backdoor Roth IRA contribution

Forum|Forum|7 years ago
June 1, 2019
6 replies
0 views

The app is saying I have a penalty for excess contributions to a ROTH IRA but I contributed to a traditional IRA and then did a Roth conversion. That doesn't seem correct.

TurboTax Deluxe Online

Best answer by AnnetteB6

Based on your question, you may not have entered the information in just the right way to report your Traditional to Roth conversion. Take a look at the following steps used to report such a conversion within TurboTax.

A back door Roth is a term used to describe a method of funding a Roth IRA when your modified adjusted gross income (MAGI) is too high to allow you to directly contribute to a Roth IRA. A back door Roth consists of opening a Traditional IRA and making a fully non-deductible contribution to the Traditional IRA. The Traditional IRA can then be converted to a Roth IRA without any income limitations or restrictions on your MAGI.

Here are the general steps you need to take to report this type of transaction in TurboTax, either the online or desktop version. First, take care of the Traditional IRA contribution:

Enter “IRA contributions” in the search box located in the upper right corner of the program and initiate the search.
Your top search results will be a link to Jump to the section you need.
Check the box showing that you contributed to a Traditional IRA. Remember, that is where you initially put the money.
The next screen asks you to verify that you contributed to a Traditional IRA, choose Yes.
The next screen asks if the contribution was a repayment of a retirement distribution, choose No.
Next, enter the amount that was contributed to the Traditional IRA.
The next screen is a little tricky unless you read it carefully. It is asking if you “recharacterized” the contribution. This is different from a conversion, so the answer is No.
On the next screen (or two), there will be a question about whether you are covered by a retirement plan at work. Answer according to your situation.
Following that, there will be a question about Excess IRA Contributions. Answer this according to your situation.
Now, we’re at an important step. The question will be, were there any nondeductible contributions to the IRA. The answer here is Yes.
The next page asks for the basis of the Traditional IRA. If you have never made nondeductible contributions in the past and kept them in the IRA, your basis is zero. Otherwise, enter the amount shown as total basis on your most recently filed Form 8606.

That takes care of the first part of the process. Next, you need to take care of the conversion of the Traditional IRA to the Roth IRA. When you do this, a Form 1099-R will be issued to report the conversion. You will simply enter the information from the Form 1099-R into TurboTax using these steps:

Enter “1099-R, distribution from an ira” in the search box located in the upper right corner of the program and initiate the search.
Your top search results will be a link to Jump to the section you need.
Enter the information exactly as it appears on your Form 1099-R. Pay special attention to Box 2b, Box 7, and the IRA/SEP/SIMPLE check box. Click Continue.
The next screen is a follow-up question asking whether you inherited the IRA. Answer No.
The next screen asks what you did with the money. Answer I moved the money to another retirement account.
Then, choose I converted all of this money to a Roth IRA account to answer the question that appears.
Finally, there will be a final question to determine whether any of the money was moved back to the traditional IRA. Answer No.

One final note, if the Traditional IRA earned any money before it was converted to the Roth IRA, those earnings will be taxable on your return.

A

AnnetteB6Answer

Level 15

Based on your question, you may not have entered the information in just the right way to report your Traditional to Roth conversion. Take a look at the following steps used to report such a conversion within TurboTax.

A back door Roth is a term used to describe a method of funding a Roth IRA when your modified adjusted gross income (MAGI) is too high to allow you to directly contribute to a Roth IRA. A back door Roth consists of opening a Traditional IRA and making a fully non-deductible contribution to the Traditional IRA. The Traditional IRA can then be converted to a Roth IRA without any income limitations or restrictions on your MAGI.

Here are the general steps you need to take to report this type of transaction in TurboTax, either the online or desktop version. First, take care of the Traditional IRA contribution:

Enter “IRA contributions” in the search box located in the upper right corner of the program and initiate the search.
Your top search results will be a link to Jump to the section you need.
Check the box showing that you contributed to a Traditional IRA. Remember, that is where you initially put the money.
The next screen asks you to verify that you contributed to a Traditional IRA, choose Yes.
The next screen asks if the contribution was a repayment of a retirement distribution, choose No.
Next, enter the amount that was contributed to the Traditional IRA.
The next screen is a little tricky unless you read it carefully. It is asking if you “recharacterized” the contribution. This is different from a conversion, so the answer is No.
On the next screen (or two), there will be a question about whether you are covered by a retirement plan at work. Answer according to your situation.
Following that, there will be a question about Excess IRA Contributions. Answer this according to your situation.
Now, we’re at an important step. The question will be, were there any nondeductible contributions to the IRA. The answer here is Yes.
The next page asks for the basis of the Traditional IRA. If you have never made nondeductible contributions in the past and kept them in the IRA, your basis is zero. Otherwise, enter the amount shown as total basis on your most recently filed Form 8606.

That takes care of the first part of the process. Next, you need to take care of the conversion of the Traditional IRA to the Roth IRA. When you do this, a Form 1099-R will be issued to report the conversion. You will simply enter the information from the Form 1099-R into TurboTax using these steps:

Enter “1099-R, distribution from an ira” in the search box located in the upper right corner of the program and initiate the search.
Your top search results will be a link to Jump to the section you need.
Enter the information exactly as it appears on your Form 1099-R. Pay special attention to Box 2b, Box 7, and the IRA/SEP/SIMPLE check box. Click Continue.
The next screen is a follow-up question asking whether you inherited the IRA. Answer No.
The next screen asks what you did with the money. Answer I moved the money to another retirement account.
Then, choose I converted all of this money to a Roth IRA account to answer the question that appears.
Finally, there will be a final question to determine whether any of the money was moved back to the traditional IRA. Answer No.

One final note, if the Traditional IRA earned any money before it was converted to the Roth IRA, those earnings will be taxable on your return.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

S

Spouse1234

Level 4

@DCinvestor , Yes, for 2017, I found that when I added that, it took it into account and my taxes owed went down. I'm just not sure how to handle it for the 2016 contribution, for which I did the Traditional IRA nondeductible contribution and Roth conversion in 2017 (within a day).

R

Randal 12

Level 2

some mix up----- just want to get my taxes done, I have moved from fla. to Tx. and have used Turbo Tax for several years.

L

Lyn7

Level 2

8606 is not being triggered in order to report that all of my Traditional IRA contribution was all after-tax, non-deductible so my tax payment is going up. Can someone help please?

macuser_22

Alumni - Champ

@Lyn7 wrote:

8606 is not being triggered in order to report that all of my Traditional IRA contribution was all after-tax, non-deductible so my tax payment is going up. Can someone help please?

Follow the instructions:

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. If you had a 2018 non-deductible contribution and did not file a 8606 then you need to mail in a 2018 8606 now so that it can be entered.).

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.**

W

Wyldaisy

Level 4

Hi,

Regarding the question: "Were there any nondeductible contributions to the IRA":

The 2020 version of Turbo tax says: "Any non-deductible Contributions to your IRA? Let us know if you made and kept track of any non-deductible contributions to your traditional IRA from 2019 or prior years."

I've never had an IRA before and due to income limitations, I contributed money to a traditional IRA in 2021 for tax year 2020 that I immediately converted to a Roth. It would seem that I should answer NO to the question above, is that correct? If I answer that question NO, the next screen immediately says I do not qualify and no tax break, which I understand and agree with. However, I just want to make sure I answer that question correctly to make sure all of the correct forms populate for 2020.

If you answer NO to that question, you do not get the additional screens about 'basis', etc. But it is just not clear to me if that question wants to know if there any nondeductible contributions to the IRA in 2020 (my case - YES), or only 2019 and prior (in my case - NO).

Thanks

K

Kate12NJ

Level 2

Same circumstances as others except I have $$ left in my traditional IRA. I have a traditional IRA to which I have been contributing since 2012, all non deductible. Since 2018 I started taking chunks to convert to Roth. How can I tell if my taxable amount is correct on turbotax? Last years conversion (1st one) resulted in no tax and this year it’s quite significant, increasing my taxes by almost $1k. I did the contribution section as well but I need to verify TurboTax is properly calculating the taxable amount. How can I see that? I also missed a contribution which I did in 2019 for 2018 so that would increase my basis. Help please

D

dmertz

Level 15

Kate12NJ, if you need more information, please start a new thread by asking a separate question rather than add to this already too-long old thread. Generally, though, unless your traditional IRAs have not gained in value over the years or your 2018 taxable income was zero before adding the Roth conversion, it's likely that you prepared your 2018 Form 8606 incorrectly, perhaps by inappropriately omitting your 2018 year-end balance in traditional IRAs, resulting in an incorrectly low taxable amount being calculated on the 2018 Form 1099-R, and you need to amend your 2018 tax return. (You already need to amend your 2018 tax return to add the omitted traditional IRA contribution.) If so, your 2019 tax return is also incorrect, showing a lower-than-correct taxable amount because the basis in nondeductible traditional IRA contributions that transferred from your 2018 tax file was higher than actual.

M

murph2005

Level 2

What is the tax deadline to rollover over the contribution from the Traditional IRA back into the Roth IRA? The re-characterization already occurred for the 2019 contributions from the Roth to our Trad IRAs and now we are trying to roll it back over (back door) into the Roth IRA.

macuser_22

Alumni - Champ

@murph2005 wrote:

What is the tax deadline to rollover over the contribution from the Traditional IRA back into the Roth IRA? The re-characterization already occurred for the 2019 contributions from the Roth to our Trad IRAs and now we are trying to roll it back over (back door) into the Roth IRA.

You are not rolling it back. You are doing a Traditional IRA to Roth conversion. If done anytime in the 2020 calendar year then it is a 2020 conversion reported next year on your 2020 tax return.

**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.**

D

dmertz

Level 15

More specifically, the Roth conversion is includible on your tax return for the year in which the distribution from the traditional IRA occurs. If the Roth IRA is held in the same financial institution as the traditional IRA, the distribution from the traditional IRA and the conversion contribution to the Roth IRA generally occur on the same day, but it's possible in other circumstances that the conversion contribution to the Roth IRA can occur on some day after the distribution from the traditional IRA and even if the conversion contribution occurred early in the year following the year of the distribution from the traditional IRA the conversion is reportable only on the tax return for the year in which the distribution from the traditional IRA occurred. The only difference is that the conversion contribution will appear on the Form 5498 from the Roth IRA for the year in which the conversion contribution occurred rather than on a Form 5498 for the year in which the distribution from the traditional IRA occurred. Occasionally the IRS will question this, but there is nothing wrong with this. It may just require explanation.

R

RandomUserName1

Level 2

THANK YOU!!!!

The "this question is tricky" about recharacterization was exactly where I went wrong. for me it should have been zero because it does not include rollovers.

Thanks! What a pain!