Hi, I received a 1099-R for a backdoor Roth conversion. If I enter the info, I am being taxed on the full amount. Is there a way to indicate that it was re-invested?

[macuser_22 · Accepted solution]

A backdoor Roth is two separate transactions.  A non-deductible contribution to a Traditional IRA.

And a distribution from the Traditional IRA converted to a Roth.

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  If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself.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 IRA and ended up with a zero amount in ALL Traditional IRA accounts will this Roth conversion not be taxable.

First you must enter your Traditional IRA contributions (if there were 2016 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 2016.     (Usually zero unless you also made a 2015 or earlier non-deductible contribution).

Enter the 2016 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 2016, 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 15a of them 1040 form and a zero taxable amount on line 15b  if you did it right.

Also see this website that has some screenshots of the procedure
http://thefinancebuff.com/how-to-report-backdoor-roth-in-turbotax.html

[freedom_1]

Unfortunately this does not work for the very situation someone else asked about.

A person John Smith -  makes a nondeductible Trad IRA contribution of 6000 in the year 2020 for year 2019

Same person John Smith -  makes a nondeductible Trad IRA contribution of 6000 in the year 2020 for year 2020

Before the end of 2020, $12000 is converted to ROTH IRA

This person receives a 1099-r in 2021 for 12000.

There's no way to enter this in Turbotax without incurring either a state or a federal (or both) level tax increase

[mebaker17]

Yes.  This is exactly what happened to me.   What's the solution, TurboTax???

[macuser_22]

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@mebaker17 wrote:

Yes.  This is exactly what happened to me.   What's the solution, TurboTax???

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The solution is what I already posted.

Enter the 2020 contribution in the IRA contribution interview and enter the 2019 8606 form line 14 amount in the 2020 1099-R interview for the  prior years non-deductible contributions.

[freedom_1]

@mebaker17 

Did you find that it was your state tax owing that went up? I noticed that for me it was going up for my state.

If so, go into that state, under adjustments you can say that the 12000 of income was already taxed.

That will reduce the state tax burden back to 0.

Because that income has indeed been taxed since (I am assuming) you did not take a deduction for it.

Let me know if that helps.

[freedom_1]

@macuser_22 

In my case I did not have an 8606 for 2019 and I assume that might be the case for the person asking this last question.

[macuser_22]

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@freedom_1 wrote:

@macuser_22 

In my case I did not have an 8606 for 2019 and I assume that might be the case for the person asking this last question.

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You said you had the same problem which was a non-deductible Traditional IRA contribution made *in* 2020 *for* 2019.   That can ONLY be reported on a 2019 8606 form as non-deductible.   That might require amending 2019 to report it - without the 8606 you forfeit the ability to apply the non-deductible contribution to the conversion.

[freedom_1]

@macuser_22 

Yes you are right and I do have form 8606 for 2019.

But my 1099-R issued to me in 2021 for the year 2020 has the cumulative sum of 12,000

You are also right that one would have to amend the tax return to show form 8606

[macuser_22]

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@freedom_1 wrote:

@macuser_22 

Yes you are right and I do have form 8606 for 2019.

But my 1099-R issued to me in 2021 for the year 2020 has the cumulative sum of 12,000

You are also right that one would have to amend the tax return to show form 8606

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Then just what problem are you having?

The 2020 non deductible contribution entered into the 2020 IRA contribution interview should produce a similar 2020 8606 with the 2020 $6,000 on line 1 and the 2019 $6,000 contribution entered in the 1099-R interview would put the 2020 $6,000 on the 8606 line 2 for total of $12,000 on line 3 to offset the tax of the $12,000 conversion (assuming a year end Traditional IRA value of zero).

[mebaker17]

Both Federal AND State taxes went up.  I contributed 6k in both 2019 and 2020 and then converted all 12k in 2020, but I'm not sure how that triggered a 1099-r

I checked my 2019 8606, and the conversion didn't go through there.  Do I need a corrected 1099-r for 2019?

[jacubz]

SOLVED

I had a similar issue whereby I contributed $6k for 2020 and $6K for 2021. Unfortunately, my 1099-R showed a gross distribution of $12,000 which was causing both my state and federal taxes to increase. The notes above about an 8606 were not particularly useful as I could not directly edit the 8606. Here's how to resolve the issue:

1. Go to Wages & Income ->IRA, 401(k), Pension Plan Withdrawals -> Edit/ Add
2. Edit the 1099-R (with the $12k distribution)
3. Keep the $12,000 on the 1099-R Box 1 (possibly box 2 as well)
4. "Continue" until you reach "Any Nondeductible Contributions to Your IRA?"
5. Select "Yes"
6. If you properly filled out a form 8606, or did TurboTax for the previous year, noting your $6k contribution for the first year, you should then have a tax basis. When I review form 8606 from TurboTax for 2020, Line 14 shows "total basis in traditional IRAs for 2020" of $6,000. You can download your 2020, or previous year forms, by going to "Documents" on the left hand navigation.
7. Enter a total basis from Line 14 on your 8606. If you did the full amount, it should be $6,000
8. "Continue." Everything else should be the same - your state and federal taxes should go back to normal.