I'm being taxed twice on a ROTH IRA conversion. I made a contribution of $5500 with post tax dollars to an IRA, then I immediately converted it to a Roth. It's my understanding that I shouldn't be paying tax on this twice, however, my refund dropped $15

[macuser_22 · Accepted solution]

Be sure that you first entered the non-deductible contribution in the IRA contributions section and you specified that it was non-deductible.   The go through the 1099-R interview so that the after-tax "basis" will be applied in the part of the interview after the 1099-R entries screen.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR  Use the "Tools" menu  (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

[macuser_22]

Note:

This so-called “back-door Roth”  method ONLY works if you have NO OTHER Traditional IRA accounts.  If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself.  Only if you started with NO Traditional IRA and ended up with a zero amount in ALL Traditional IRA accounts will this Roth conversion not be taxable.

[chazdawg]

Thanks...the issue was that I was never prompted to input the actual contribution to the IRA.  I added the 1099-R, but never inputted the contribution.  Once I did that...everything fixed itself.  And as you said, I have no more traditional IRA, just Roth.

[guendjoh]

So how do you do this?  I copied all 1099R info and I owe taxes twice.

I liquidated my traditional IRA, say $10000, got a check (and eventually a 1099R), put it in an existing ROTH IRA.  I paid taxes on it as installments later on during the year.  I then transfer $5000 of this taxed ROTH money into my checking account. 

i) Why is Turbotax saying I owe taxes on $15000 instead of $10000?  That means I pay taxes twice on 5000.

ii) Is it because Fidelity check-marked tax undetermined when it's should be no tax? If I put cash money into a Roth, I paid taxes on it.  If I got a check from another bank, they will provide me with a 1099R.  Fidelity should not be concerned with this as they know the check came from a traditional IRA and thus, the original bank will provide me with a 1099R -normal distribution. 

Anyway, thank you all for your help.

[macuser_22]

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@guendjoh wrote:

So how do you do this?  I copied all 1099R info and I owe taxes twice.

I liquidated my traditional IRA, say $10000, got a check (and eventually a 1099R), put it in an existing ROTH IRA.  I paid taxes on it as installments later on during the year.  I then transfer $5000 of this taxed ROTH money into my checking account. 

i) Why is Turbotax saying I owe taxes on $15000 instead of $10000?  That means I pay taxes twice on 5000.

ii) Is it because Fidelity check-marked tax undetermined when it's should be no tax? If I put cash money into a Roth, I paid taxes on it.  If I got a check from another bank, they will provide me with a 1099R.  Fidelity should not be concerned with this as they know the check came from a traditional IRA and thus, the original bank will provide me with a 1099R -normal distribution. 

Anyway, thank you all for your help.

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What you describe has noting to do with a "Backdoor Roth" whatsoever.    What you was an indirect Traditional IRA to Roth IRA *conversion* (assuming that you put the money into the Roth within 60 day of the distribution - otherwise it would be a prohibited Roth contribution).    You enter the 1099-R for the Traditional IRA distribution and answer the question  that the money was converted to a Roth IRA.  That 1099-R should have the IRA/SEP/SIMPLE box checked and  code 1, 2 or 7 on box 7 depending on your age.

The 1099-R for the Roth distribution can be subject to tax and penalty if any earnings were distributed before the 5 year waiting period was over, but assuming that no earnings were distributed then answer the follow up questions that the Roth money was from a prior conversion then  it will not be taxed.  That 1099-R should have a code J in box 7 if you are under age 59 1/2.

The follow up question come after the 1099-R summary screen.   Read them carefully - yiu did not make a Roth contribution so do not enter anything on that screen.

[guendjoh]

Thanks for your prompt response.  I understand about the back-door vs standard conversion.  I did roll it before the 60-days was up.  I read that the 5-year rule applies specifically to investment earnings. So if my ROTH account sits as cash right now does it exclude it from the 5-yr rule? Thanks again for your help.

[macuser_22]

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@guendjoh wrote:

Thanks for your prompt response.  I understand about the back-door vs standard conversion.  I did roll it before the 60-days was up.  I read that the 5-year rule applies specifically to investment earnings. So if my ROTH account sits as cash right now does it exclude it from the 5-yr rule? Thanks again for your help.

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As I said above:  "The 1099-R for the Roth distribution can be subject to tax and penalty if any earnings were distributed before the 5 year waiting period was over..."

In your case, since the amount distributed was less than the amount converted then there will be no tax.

[guendjoh]

Awesome. Thanks!