Entering 1099-R for Traditional IRA significantly reduces my refund, but all I've done is backdoor convert to Roth?

[trianta2]

According to my Trad IRA custodian, in 2019 there were 6 transactions:

1. Contribute to 2018 tax year for $5.5k, and immediately backdoor convert to Roth
2. Contribute to 2019 tax year for $6k, and immediately backdoor convert to Roth
3. Rollover Trad 401(k) to Trad IRA for $750, and immediately backdoor convert to Roth
   • This was from contribution "overflow" from my Trad 401(k)

Note that I do not have any Trad IRA balance subject to the pro rata rule.

My 1099-R shows an amount of $12,250 in box 1 as the gross distribution, and once I enter this amount, my Federal Refund drops significantly.

I don't understand why, as these contributions were made with post-tax income and immediately converted before significant gains were made. I also don't understand why my 2018 contribution is listed here. I was playing with box 1, and found that if $6k was entered, then my Federal Refund was not reduced.

I feel like I must be missing something. What is the correct way to enter these transactions in TurboTax?

Edit: Form 1040 shows that $6,250 of the $12,250 is taxable, so I see where the refund reduction is coming from. However, I don't think the Trad IRA contribution & conversion for 2018 should be taxable. The $750 should be taxable.

[DanaB27 · Accepted solution]

After you entered your 1099-R there should be follow up questions in TurboTax about your basis in your traditional IRA. If you made nondeductible contributions to your traditional IRA then you will have a basis in your traditional IRA. Please review the instructions on how to enter a "Backdoor IRA" to ensure it is calculated correctly in TurboTax:

To enter the 2019 $6,000 nondeductible contribution to the traditional IRA (the 2018 $5,500 contribution should have been entered in 2018 tax return):

1. Login to your TurboTax Account 
2. Click "Federal" from the left side of your screen
3. Click “Deductions &Credits” on the top
4. Scroll down to “Retirement and Investments” and click “Show more”
5. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
6. Select “traditional IRA”
7. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
8. Enter the amount you contributed
9. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
10. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes”
11. If you had a basis in the Traditional IRA before then enter the amount.
12. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount.

To enter the 1099-R ($12,250) distribution/conversion: 

1. Click "Federal" from the left side of your screen
2. Scroll down to “Retirement Plans and Social Security” and click “Show more”
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan Withdrawals (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 converted all of this money to a Roth IRA account.”
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contributions to your IRA?"
12. Answer the questions about the basis

Please be aware that the whole distribution will show as income in TurboTax on the summary screen which shows gross income, not taxable income. To verify that the entry is correct please look at form 1040 line 4b (taxable amount).

To preview Form 1040:

1. Click on "Tax Tools" in the left menu
2. Click "Tools"
3. Click "View Tax Summary" in the Tool Center window
4. Click on "Preview my 1040" on the left

[trianta2]

Hi @DanaB27, entering the $5,500 basis from 2018 resolved the issue. I checked my 2018 return and Form 8606 was filed, so I believe I'm in good shape. Now Form 1040 only shows the $750 portion as taxable, which is correct. Thanks for your help!

[DanaB27]

You are welcome!