I did backdoor Roth IRA in 2024 for 7000 from Trad IRA. Why is the 1040 showing 500 as taxable ? Is it because 2023 8606 is 6500?

[MayaD]

A Roth conversion is not limited based on the year you contributed to your traditional IRA, but rather on the year you actually perform the conversion. The conversion results in taxation of any untaxed amounts in the traditional IRA. 

If you deducted your traditional IRA contributions and then decided to convert your traditional IRA to a Roth IRA, you will need to pay taxes on the pre-tax assets. Additionally, if you convert any investment earnings from your traditional IRA to your Roth IRA, you will have to pay taxes on the earnings.

irs.gov

[hirenkava]

Let me clarify - those 7000 are already post tax. I am doing backdoor because my income is higher than the cutoff to be eligible for trad ira deduction. I was hoping that turbotax will ask me if this amount is post tax it but it did not. And now its showing 500 as taxable which is wrong imo. Is there something i can do to correct it ?

[ThomasM125]

You needed to first enter a non-deductible IRA contribution to a traditional IRA in TurboTax, and then enter the Form 1099-R reporting the rollover into TurboTax and indicate that it is a Roth IRA conversion. You will be asked to enter balances in IRA accounts for current and previous years and also the non-deductible contributions you made to your traditional IRA accounts. You have to be careful to answer those questions accurately to get everything to report properly.

For the backdoor IRA, enter a traditional IRA contribution in the Deductions and Credits section of TurboTax, then Retirements and Investments, then Traditional and Roth IRA Contributions. Indicate that your traditional IRA contribution is non-deductible when asked in the program:

When you enter the 1099-R form in TurboTax, you need to first indicate that you moved the money to another retirement account and that you did a combination of rolling over, converting or cashing out the money. Then, enter the amount converted to a ROTH IRA. Later on you need to indicate that you tracked non-deductible contributions to your IRA.

[dbhaumik]

Hello, I have the same issue, tried filling out in different ways as recommended, nothing is helping, it still shows that I have to pay taxes for $500/-.

'Do you want to make IRA contributions non deductible', that option doesn't even show up.

Further help would be appreciated. Thanks

[DanaB27]

Please note if you have a retirement plan at work and are over the income limit it will be nondeductible automatically. You do not get the “Choose Not to Deduct IRA Contributions”  screen but instead get a warning that your income is to high to deduct the contribution. After this you get a screen saying $0 is deductible. This is what you want for the backdoor Roth.

To clarify, did you have any pre-tax funds in the IRA? If yes, then the the pro-rata rule applies. This means that with each distribution/ conversion you will have a taxable and nontaxable part. You can see the remaining basis on line 14 of Form 8606, this basis can be carried forward. 

Also, if you had earnings before you converted the funds then these will be taxable as well.

If you had a basis on your 2023 Form 8606 line 14 but do not see the “Any Nondeductible Contributions to Your IRA?”  screen then please see Why am I unable to report my 2023 for 8606 basis?

To enter the nondeductible contribution to the traditional IRA for 2024:

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

[dbhaumik]

Tried all that was mentioned, still doesn't work.  This year's max backdoor Roth IRA contribution is 8000, last year it was 7500. When asked to write the total basis from 2023 tax returns I have to mention 7500.

Turbo tax then charges taxes for the extra 500. Instead of saying 7500 if I say 8000 ( which is wrong) it doesn't charge tax for the extra 500.

In form  8606 enter your non deductible contributions to traditional IRAs for 2024 it shows the value of 7500 and not 8000, it should be 8000.

[DanaB27]

To confirm you made a 8,000 contribution for 2024 and a $7,500 contribution for 2023, correct? Then your Form 8606 should have $8,000 on line 1 (from entering the $8,000 nondeductible traditional IRA contribution in the IRA contribution section) and  $7,500 on line 2 (when you enter the basis from 2023 Form 8606 after you get the “Any Nondeductible Contributions to Your IRA?” screen).

To clarify, you made the $8,000 contribution for 2024 in 2024?  And you have a 2024 Form 1099-R for the conversion with $15,500?

@dbhaumik