I converted a trad IRA funded with after tax $ to a roth IRA. The system is showing the entire amount as taxable income instead of just the earned amount. Is that wrong?

[nanakokroko]

I contributed to a traditional IRA during the year using after tax dollars and then I converted it to a Roth IRA. My expectation was that the earned income portion will be taxable, but the system seems to be including the entire converted amount into my income for the purpose of calculating the tax. Is that not wrong? How do I fix this?

[DanaB27]

Yes, if you traditional IRA was empty before making the contribution then only the earnings should be taxable on line 4b of Form 1040.  

Please use the following instructions to enter a "Backdoor IRA" to ensure it is calculated correctly in TurboTax.

To enter the nondeductible contribution to the traditional IRA:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2023 Form 8606 line 14 (if you had a basis in the prior year)
10. 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 Form 1099-R conversion: 

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Review your 1099-R info" screen click "Continue"
6. Answer "Yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2023 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

If you are using TurboTax Desktop, please see How do I enter a backdoor Roth IRA conversion?