How to report earnings from traditional IRA -> Roth IRA in Turbo Tax

1) TurboTax will automatically calculate the taxable portion on Form 8606 when you enter the nondeductible contribution and conversion. If all of her traditional/SEP/SIMPLE IRAs were empty on December 31, 2022, then the earnings of $4 (rounded down) will be taxable on line 4b of Form 1040.

 

First, she will enter the nondeductible contribution with these steps:

 

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the total amount you contributed for 2022 ($6,000) and the amount you contributed between Jan 1, 2023 and April 18, 2023 ($1,000).
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had nondeductible contributions before this tax year
10. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
11. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

 

To enter the 1099-R conversion: 

 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (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 did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
12. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

 

2) She will have a $1,000 basis on line 14 of the 2022 Form 8606 to carry over to 2023. When she converts the rest in 2023 then please verify that the basis got carried over (step 12 of conversion).

Thank you for your help and sorry for the late reply.

 

I've followed your steps but in Form 1040 Line 4B I see $0 and Line 4a I see "11,004".

 

For Line 4a, I assumme this is a combination of my contribution  of $6,000 + my spouse of $5,004 which is $5,000 +$4 earnings. We are filing jointly.

 

In my spouse's Form 8606 Line 13, Line 16 and Line 17 it is $5,004.

 

I'm not sure if I entered correctly such that the $4 is recorded somewhere for tax. 

Please verify, that you have entered the $1,000 contributed for 2022 in 2023 under "Tell us how much of the above total contribution for 2022 you contributed between January  1, 2023, and April 18th, 2023" during the traditional IRA contribution interview.

 

 

 

@Nmotion 

 

Hello! I've misunderstood my wife's Trad IRA -> Roth IRA actions and want to sync up with TT community how I should proceed.

 

Here is the corrected steps she took during 2022 and 2023:

1. She has contributed a total of $6,000 in 2022 

2. She converted $5,004.42 in 2022. The $4.42 are earnings in a money market in trad IRA before converting to Roth IRA

• This leaves $1,000 cost basis in 2022.
• She received a 2022 1099-R of $5004.42 for the conversion

3. She had $1,003 in December 31 2022 has shown in form 5498

• She converted the $1,003 amount in February 2023

 

When I followed your steps and enter the cost basis and 2022 1099-R form, it did not consider the $4.42 as taxable event. Is this because the conversion to Roth IRA in 2022 ($5,004.42) is less than the contribution made of $6,000?

 

If the tax is going to be calculated for the following year because of step 3 conversion in Feb 2023, do I just pay the taxable earnings for the year of 2023? How will this add up to the tax year of 2023?

Yes, the $4.42 was not taxable on the 2022 return because the total amount converted to the Roth IRA was less than the Traditional IRA basis of $6000.  After the conversion, your basis in the Traditional IRA was reduced by $5004.42.  

 

So, when you report the 2023 Traditional IRA to Roth IRA conversion, you should have a taxable amount of $4.42 + $3.00 because your remaining basis in the Traditional IRA is $995.58 ($6000 - $5004.42).

 

@Nmotion