I contributed $5500 of post-tax money to a traditional IRA and converted that to a Roth IRA. TT is not handling this properly, re-taxing the $5500 and penalizing theRoth

[tkhikes]

I should not be re-taxed on the post-tax contribution and traditional to Roth conversions are NOT limited by income.

[AnnetteB · Accepted solution]

The situation you described is commonly called a back door Roth, and you are correct, it should not be a taxable event on your return if it is entered properly.  Take a close look at the steps below to report the transactions in your return.

First, take care of the Traditional IRA contribution:

1. Enter “IRA contributions” in the search box located in the upper right corner of the program and initiate the search.

2. Your top search results will be a link to Jump to the section you need.

3. Check the box showing that you contributed to a Traditional IRA.  Remember, that is where you initially put the money.

4. The next screen asks you to verify that you contributed to a Traditional IRA, choose Yes.

5. The next screen asks if the contribution was a repayment of a retirement distribution, choose No.

6. Next, enter the amount that was contributed to the Traditional IRA.

7. The next screen is a little tricky unless you read it carefully.  It is asking if you “recharacterized” the contribution.  This is different from a conversion, so the answer is No.

8. On the next screen (or two), there will be a question about whether you are covered by a retirement plan at work.  Answer according to your situation. 

9. Following that, there will be a question about Excess IRA Contributions.  Answer this according to your situation.

10. Now, we’re at an important step.  The question will be, were there any nondeductible contributions to the IRA.  The answer here is Yes.

11. The next page asks for the basis of the Traditional IRA.  If you have never made nondeductible contributions in the past and kept them in the IRA, your basis is zero.  Otherwise, enter the amount shown as total basis on your most recently filed Form 8606.

That takes care of the first part of the process.  Next, you need to take care of the conversion of the Traditional IRA to the Roth IRA.  When you do this, a Form 1099-R will be issued to report the conversion.  You will simply enter the information from the Form 1099-R into TurboTax using these steps:

1. Enter “1099-R, distribution from an ira” in the search box located in the upper right corner of the program and initiate the search.

2. Your top search results will be a link to Jump to the section you need.

3. Enter the information exactly as it appears on your Form 1099-R.  Pay special attention to Box 2b, Box 7, and the IRA/SEP/SIMPLE check box.  Click Continue.

4. The next screen is a follow-up question asking whether you inherited the IRA.  Answer No.

5. The next screen asks what you did with the money.  Answer I moved the money to another retirement account.

6. Then, choose I converted all of this money to a Roth IRA account to answer the question that appears. 

7. Finally, there will be a final question to determine whether any of the money was moved back to the traditional IRA.  Answer No.

One final note, if the Traditional IRA earned any money before it was converted to the Roth IRA, those earnings will be taxable on your return. 

[SusanDF]

Hi, 

I followed the instructions in the solution exactly yet I am still being taxed on the IRA contribution. 

I'm hoping that someone may be able to help me with my special situation. 

I opened a first ever Traditional IRA with $7000 in order to then convert it using a backdoor Roth.  This did grow to 7030.36 before the conversion was done so I'm aware that I should be taxed on the $30.36 that was the increase.

$7030.36 was distributed, of this unfortunately 10% federal ( $703) and 5% state ($355) was taken out, but I expected that I'd be able to get that back during tax filing. 

My 1099 R shows gross distribution ( box 1) $ 7030.36 taxable Amount (box 2) $7030.36 and box 2B is checked ( taxable amount not determined)

Box 7 Distribution code is '2'

IRA SEP SIMPLE has a Y in the box.

Federal Withholding $703.04

State Withholding $355.03

Box 9b is blank

I think I have to somehow figure out how to tell Turbo Tax that the $7K contribution was made with before tax money and should not be taxed, that I should be refunded the tax that was indeed withheld and not get any further taxes from this amount. 

When I do the IRA contributions portion

I entered: Tell us how much you contributed to 2019 traditional IRA: $7000  ( nothing between Jan 1-April 15, '20)

Did you change your mind? No

Any Excess IRA Contributions before 2019? No

Any nondeductible contributions to IRA? No ( this is the first year doing a post tax traditional IRA with rollover to Roth, so I can see it is not deductble, so I'd want to do this for now for NEXT year I'd think , but I didn't do this for 2018 prior)

Value of Traditional IRS on Dec31 '19 : zero ( it was all converted to Roth by then)

When I look at my preview of 1040 line 4 shows me IRA distribution of $7030 and line 4b taxable amount shows $3522 - which seems crazy to me - this is what I think should actually be $30 ( for the amount the Trad IRA increased before it was converted to Roth) 

Any help you can provide is greatly appreciated!