Hi, 1099-R taxable income 2a has amount even though it was a roth conversion

[dhuynh44]

Hi,

I have been reading that there has been some mistake with 1099-R and CARES act etc.  I did a few traditional IRA to roth conversions in 2020, and I got 2 1099-R, one of them with $2000 or so as taxable income (box 2a).  I did not take a distribution this was a conversion, but when I enter this information turbotax adds money to the tax I owe.  How do I notify turbotax or change it so I do not get taxed for this conversion? 

Thank you

[DanaB27]

Please, be aware that conversions from a traditional IRA (pre-tax contributions) to a Roth IRA (after-tax contributions) is included in your taxable income unless you had and tracked nondeductible contributions (this basis is tracked on Form 8606).

The reason for this is distributions from a traditional IRA are taxable but qualified distributions from a Roth are not taxable. Also contributions you made to your Roth IRA can be withdrawn anytime, tax- and penalty-free. 

1. Click on "Search" on the top right and type “1099-R”
2. Click on “Jump to 1099-R” and enter the information from your 1099-R
3. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
4. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"

If you had a basis in your traditional IRA then please make sure you enter this when going through the follow-up questions after entering your 1099-R:

1. Answer "yes" to "Any nondeductible Contribution to your IRA?"
2. Answer the questions about the basis

[dhuynh44]

Thank you.  Are you able to provide specific examples of what to enter as far as basis etc?  For example, I converted $1000 directly from traditional Ira to Roth IRA the very same day it was in my account, not incurring any gains.  Would $1000 be my basis?  Also, does it make a difference if I contributed after tax dollars to the traditional IRA before converting?  Thank you

[DaveF1006]

Yes, if that $1000 amount is after tax dollars, then that is your basis you will use.  If the $1000 was pre-tax dollars, you would need to pay income tax on the conversion. Additionally if this $1K was pre-taxed money, the basis would be zero.  Hope this helps.

[macuser_22]

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@dhuynh44 wrote:

Thank you.  Are you able to provide specific examples of what to enter as far as basis etc?  For example, I converted $1000 directly from traditional Ira to Roth IRA the very same day it was in my account, not incurring any gains.  Would $1000 be my basis?  Also, does it make a difference if I contributed after tax dollars to the traditional IRA before converting?  Thank you

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Did you make a 2020 Traditional IRA contribution?   If you did then you probably failed to enter it in the IRA contributions interview.

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

OR  Use the "Tools" menu  (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR  Use the "Tools" menu  (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

[dhuynh44]

Ok everyone I've run into a problem.  When it asks, "What Did you do with the money from Bank?"

On the bottom it says "Tell Us how much of the Box 1 and 2a $1000 did I move to IRA, 401k,  or other retirement account"

I have 2 options: Amount rolled over to another retirement account AND/OR Amount Converted to Roth IRA Account.  Which blank am I supposed to fill in with $1000?  When I put $1000 in both boxes it says "OOPS! The amount you moved to another account must total no more than the money I got, or $1000. 

I did a ROTH conversion, and when I input the $1000 into the blank box "Amount converted to a Roth IRA account" and leave the other box blank I have to pay taxes on it.  However when I put $1000 into "Amount rolled over to another retirement account" and leave the bottom box blank (roth conversion) I do not have to pay taxes.  Sorry for the confusion, but which am I supposed to do?

I did not take any distributions out.  Just converted traditional to roth IRA.  Thank you!

[macuser_22]

You said you converted it.  That is NOT a rollover.

[dhuynh44]

Ok, I put the whole $1000 of my contribution into the "Amount of Roth conversion" which is what I did.  Then on the next screen it asks how much basis of non-deductible IRA did I contribute, which I entered as $1000 since I converted all of the traditional IRA.  Did I do this correctly?  The amount that I was taxed has gone away.  Thank you,

[VolvoGirl]

Amount rolled over to another retirement account means to the SAME kind of account like a Traditional IRA to another Traditional IRA or even back into the same account.  Not a Traditional IRA conversion to a ROTH IRA.

[VolvoGirl]

My prior answer was for your first question.  We were toying at the same time.  But for the basis you probably answered wrong.  You would know if you made any non deductible contributions in the past.  When you contributed the 1,000 to the Traditional IRA originally did you get a deduction on your tax return?

[dhuynh44]

No, the contribution was after -tax dollars.  Hence all this confusion about having to pay taxes on converting it to a roth IRA.  I was told by my institution I would have to only pay taxes on any gains I made when the $1000 was in my traditional IRA, which was essentially $0 bc i converted the $1000 immediately to roth IRA.  I do not have any form 8606 (how to get?) but I do know how much I contributed non-deductible traditional IRA.

In this case, my basis would be $1000, correct?  Thank you

[macuser_22]

If it was a 2020 contribution you must enter it as I posted above.  The interview asks for your *prior* year (2019 or earlier) contributions, that would go on a 8606 form line 2 and not line 1 as required.

Print all forms and worksheets to see the 8606.

[dhuynh44]

Hey macuser,

So you stated to input the traditional IRA contributions like you described as $1000.  Will that override the extra taxes they are trying to tax me for my "distributions" which I actually didn't do?.  I am confused. 

All I did in 2020 was deposit $1000 into a traditional IRA account from my bank account (after tax) and convert it directly to ROTH (backdoor).   Just trying to properly do turbotax so I don't have to pay extra taxes on "distributions" which are not true.  Thank you!

[macuser_22]

The "Backdoor Roth" does not exist in tax law. It is a procedure used by some to take advantage of a quirk in tax law that allows making a non-deductible contribution to a Traditional IRA when one cannot contribute to a Roth IRA, and the immediately converting the Traditional IRA to a Roth IRA, thereby getting the money into the Roth via "backdoor" tax free.

That "procedure" can only work of all these requirements are met:
1) No Traditional IRA account whatsoever can exist (that includes any SEP or SIMPLE IRA accounts) at the start. If existing IRA's contain any before-tax money or earnings then it will be partly taxable.
2) The Tradition IRA contributions must be reported on a 8606 form as non-deductible.
3) The conversion to a ROTH must be shortly after the contribution to avoid taxable gains.
4) The entire Traditional IRA value must be zero that the end of the year of conversion.

Otherwise the conversion will be partly taxable.

First you must enter your Traditional IRA contributions (if there were 2020 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 2020.     (Usually zero unless you also made a 2019 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2020 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 2020, 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

[dhuynh44]

Thank you!

i will attempt this and will keep you updated!   Thank you