How to enter Traditional to Roth conversion Rollover contribution in the turbotax online version ?

[macuser_22]

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@tstanek wrote:

You are correct. An Agent told me last week that an update would fix it. It updated on 02/26/21, and I was able to do a back door to my Roth IRA then. It was taxed at 6%, but before the update on 02/26/21, it showed I would be paying a 6% penalty as it was treated as a regular cash deposit into my Roth IRA hence the 6% penalty.  Now after the update Form 5329 also shows a tax of 6%. My taxable income for 2020 is zero, so the 6% tax rate on Form 5329 is the only tax I will owe for 2020. I assume the 6% is one and done and not a 6% penalty for my Roth contribution?  I called Turbo Tax today, and talked to Barbara. She put put me on hold to link me to a CPA, but when she did the transfer, I received a message their was a waiting time again. So I effectively was back to square one. I called Turbo Tax back to get in line.

One more item. I have Form 8606 filled out yearly for a non deductible IRA I did years ago. It did not fill out this year for 2020. I researched and found out an update was supposed to occur by 02/12/21  for it, but it hasn't been updated as yet. What a mess.

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A backdoor Roth is done on a 8606 form.    There is no issues in that area.

You must not have entered your non-deductible contribution that creates the 8606.

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

[tstanek]

As of today the Form 8606 is not available via Turbo Tax as they are working on an update for it. This may explain why there is a penalty of 6% on my Wife's and my IRA  conversion from it to our existing Roth IRA's? I talked to a Turbo Tax lady tonight and it was determined we were being assessed the additional 6% tax penalty, meaning the transfer was being treated as a contribution instead of a conversion from an IRA to a Roth IRA.  She suggested reentering Forms 1099. I did with the same result, so I guess I may have to wait for  the update. Any other suggestions?

Please advise if there are.

Tom

[nongkangma]

@DaveF1006  For Box 7, shown below, for Traditional IRA convert to Roth IRA, do we choose #2?

Select a code_#2 early distribution (except Roth IRA)

[nongkangma]

@DaveF1006  For Box 7, shown below, for Traditional IRA convert to Roth IRA, do we choose #2?

Select a code_#2 early distribution (except Roth IRA),

am I right?

And also, when I continue, it shows 

"Based on your entry for box 7 on your 1099 R, you don't need to pay any extra taxes on the money taken out of this account. " which makes me very confused.

Thanks for your help!

[macuser_22]

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@nongkangma wrote:

@DaveF1006  For Box 7, shown below, for Traditional IRA convert to Roth IRA, do we choose #2?

Select a code_#2 early distribution (except Roth IRA),

am I right?

And also, when I continue, it shows 

"Based on your entry for box 7 on your 1099 R, you don't need to pay any extra taxes on the money taken out of this account. " which makes me very confused.

Thanks for your help!

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You do not "choose" any code other then the code that is on yiur 1099-R.    What code is on box 7 on the 1099-R?

[dmertz]

In box 7 of TurboTax's 1099-R form select whichever code is in box 7 of the Form 1099-R provided by the payer.

When you enter a Form 1099-R that has code 2 in box 7, the "extra taxes" TurboTax refers to is the 10% early-distribution penalty that would otherwise apply.

[nongkangma]

Yes, #2, on my 1099 R, #2 early distribution (except Roth IRA).

Does it means Roth conversion?

[VolvoGirl]

The extra tax it is referring to is the extra 10% early withdrawal penalty, not regular income tax on a conversion.  

[dmertz]

Code 2 means that you were under age 59½ but the payer knows that you have an exception to the 10% early-distribution penalty, in this case because the gross amount was converted to Roth.

[nongkangma]

How 1099 R designates #2 to me? 

I clearly did convert from traditional IRA to Roth IRA, NOT early distribution

[nongkangma]

@dmertz  Thank you so much, I'm clear now!

[nongkangma]

@VolvoGirl  Thank you so much for your help!

[PT313]

The problem is in the turbotax!

When I chose "rolled it over into another retirement account", there is NO drop down window to make a selection. There is NO way to indicate that the money was converted into ROTH IRA! In that way, it defaulted the money into another deductible IRA account and becomes a non taxable event. 

Please, correct the problem!

[ashleyblewis]

Yes it’s not working this year for me either 

[PT313]

I am using TurboTax Premier version, 2021, and followed the instruction posted by your expert in previous questions, as the following:

1.  entered form1099R. make sure there is a taxable amount listed in Box 2A
2. Make sure the IRA box is checked between Box 7 . Box 8 (Other) has no entry.
3. Answer the question on the next screen and continue
4. the 4th question should ask Let us know about the distribution.  Select Traditional IRA
5. Then move through the next question about inheriting and then the next screen will ask, what you did with the money.
6. Indicate you rolled it over into another retirement account
7. Then another drop down will appear. Here you will say you converted to a Roth
8.  

Problem Occurred at this step. There is NO drop down to select and no way to tell TurboTax the money was converted into ROTH account!

Also, some money in this conversion was recharacterized from excessive ROTH contribution and that part was Nondeductible. That is, I should not pay tax on it. I need to use form 8606 to adjust this amount. How to do it? (should I open a new question for form 8606?)  Please help.

Thanks!!