IRA conversion to Roth IRA

[leslieannebarton]

In 2019 I did a conversion of 30000 from a traditional IRA to a new Roth IRA (created for this transfer). I followed the panels as stated in the turbo tax instructions and I still ended up with the 6% penalty which has now carried over to 2020.  I know I have to consider the 30000 as income in 2019 but I can't get the program to remove the penalty.  The money was moved to the Roth IRA in 1 day.  I have been trying to do a 2019 amended return so I can remove the penalty and then not be taxed or penalized in 2020.  I can't seem to make it work.  The 1099-R show it as a 7 distribution of IRA.  Can I get a better explanation of what needs to be done in the panels.  I did select that it was being moved to a Roth IRA but it still shows up.  I have the desktop version of Turbotax 

[DanaB27]

Do not enter the conversion as a Roth IRA contribution under Deductions & Credits. You will only enter the 1099-R and indicate in the follow-up questions that this was a conversion. Please go through the follow-up questions carefully.

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Click "Continue" and enter the information from your 1099-R
5. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
6. 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"
7. On the "Your 1099-R Entries" screen click "continue"
8. Answer "yes" to "Any nondeductible Contribution to your IRA?"
9. Answer the questions about the basis and value

[leslieannebarton]

Thank you for your quick response.  I followed your instructions exactly.  I understand I need to taxes on the distribution from my IRA.  However, the Roth IRA is still causing a penalty of charge of 6% which carries over to my 2020 taxes.  I didn't put anything in deductions about the Roth IRA.

In my form 5329 I found this:

Part IV Additional Tax on Excess Contributions to Roth IRAs. Complete this part if you contributed more to your Roth
IRAs for 2019 than is allowable or you had an amount on line 25 of your 2018 Form 5329.  (neither is true as it is a conversion but it continues to show up and I never took anything out in 2018.  This started in 2019)
18 Enter your excess contributions from line 24 of your 2018 Form 5329. See instructions. If zero, go to line 23 18
19 If your Roth IRA contributions for 2019 are less than your maximum allowable
contribution, see instructions. Otherwise, enter -0- . . . . . . . . . 19
20 2019 distributions from your Roth IRAs (see instructions) . . . . . . . 20
21 Add lines 19 and 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
22 Prior year excess contributions. Subtract line 21 from line 18. If zero or less, enter -0- . . . . . . 22
23 Excess contributions for 2019 (see instructions) . . . . . . . . . . . . . . . . . . 23
24 Total excess contributions. Add lines 22 and 23 . . . . . . . . . . . . . . . . . . 24
25 Additional tax. Enter 6% (0.06) of the smaller of line 24 or the value of your Roth IRAs on December 31, 2019 (including 2019
contributions made in 2020). Include this amount on Schedule 2 (Form 1040 or 1040-SR), line 6, or Form 1040-NR, line 57 25
For Privacy Act and Paperwork Reduction Act Notice, see your tax return instructions. Form 5329 (2019)
[social security number removed]
30,000.
0.
0.
30,000.
30,000.
1,800.   

[leslieannebarton]

Also in the form 8606 line:

8 Enter the net amount you converted from traditional, SEP, and SIMPLE IRAs to
Roth IRAs in 2019. Also enter this amount on line 16 .

Continues to show as zero which makes me believe that is why the form 5329 gets created.

[DanaB27]

You have $30,000 excess contribution on line 18 on Form 5329? That would indicate you had an excess contribution in 2018 but you said that isn't true.

Please go through the IRA contribution interview to make sure the excess contribution wasn't entered here:

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"

If this doesn't fix the issue then you might have to delete the IRA contribution information (IRA contribution Worksheet) and the 1099-R. And then reenter the 1099-R from the conversion. 

Please see How do I delete a tax form in the TurboTax CD/Download software?

What is the code in box 7 on the 1099-R?

[leslieannebarton]

Yes there is a 7 in on line 7 on the 1099-R.  I also took a look at the 'Distributions from Pensions, IRAs, etc worksheet.  Lines B4, B5, and B6 were as follows:

B4 was 30,000 

B5 wasn't checked 

B6 was 30000

I think the form gets populated incorrectly and should be

B4 30000

B5 should be checked

B6 shouldn't show any value

I will go back and try to redo the 1099-R again by deleting it and answering the questions again.  Since 2019 is incorrect it populates over to 2020 and it is incorrect.

[leslieannebarton]

I have a 5329-T worksheet that says I brought money over from a 5329 2018 worksheet.  I got back into my 2018 tax return and I don't have a 5329 form created.  So how turbo tax pulled that information, I have no idea.  My thought is I should delete the  Additional taxes on Qualified plans form 5329 then redo the 1099-R for the IRA to Roth Conversion.  No entries  are filled out in the 8606 form for 2019 also this form was not created in in my 2018 taxes.

[DanaB27]

Yes, if you didn't have taxes withhold in box 4 or replaced the paid taxes with other funds to get back to $30,000, then 

B4 $30,000

B5 should be checked

B6 shouldn't show any value.

Otherwise, if you had for example $3,000 taxes withheld in box 4 and didn't replace it with your other funds, then

B4 30000

B5 wouldn't be checked

B6 $27,000

Yes, please review your entries if you had taxes withheld in box 4. If you did, then answer the questions on the "How much money did you actually deposit" screen carefully.

Yes, if you verified that you had didn't have an excess contribution in 2018 then you can delete the entry on Form 5329.

[leslieannebarton]

Thank you for the help.  I zeroed out the incorrect carry over from the 2018 tax return to the 2019 tax returned and that fixed the problem.  I then went back and marked B5 and zeroed out B6.  I can now go on to my 2020 tax returns and correct the same things.  It seems like a bug in information carried from one year to the next where numbers appear magically.  I have been using TurboTax for many years and this is the first time I did anything unusual.  

Thank you for your help DanaB27.  

[fanfare]

you did not make any contributions.

You did a conversion.

Yet you entered contribution amounts into TurboTax . This generates a penalty.

You have to undo that with your amendment.

[fanfare]

never mind my comment. I did not see that you resolved the issue.

[leslieannebarton]

Thanks for leaping in fanfare.  I still think there is a bug in TurboTax as there was no conversion or contribution done to an IRA or Roth IRA in 2018 so I think there is a bug in the 2019 version of TurboTax which may or may not get fixed.  But it is resolved and thanks again for giving assistance.