Marked as Excess Contribution -- Contributed to Roth IRA in 2022 but converted in 2023

[honeybadgerm]

In December 2022 I contributed money from my bank account to my Traditional IRA. I then converted it to my Roth IRA in January 2023. 

In my 2022 taxes, I did not file a form 8606. My 1099-R was $0 and my traditional IRA 5498 form had the 6,000 contribution noted on it. I did not file a form 8606 in 2022 since the turbotax screens mentioned if I plan to contribute in Jan 2023 - Apri. 2023, which I did not since I contributed in December. I then contributed 6500 for 2023 within 2023, same as usual. 

Now when I am submitting my taxes, my 1099-R is marking a contribution of 6,000 + 6500 = 12,500. It is either saying I overcontributed, or I have to pay fees since it's marking 6,000 as income. 

Was I supposed to submit a 8606 for 2022 since my conversion was in 2023? For is something wrong with the software to be marking me with errors? If I amend 8606 for 2022, do I do this before I submit my 2023 taxes? 

[DanaB27]

Yes, you were supposed to report the nondeductible traditional IRA contribution for 2022 on the 2022 Form 8606. You should have a basis on line 14 that has to be entered on the 2023 return when TurboTax asks "Any nondeductible Contributions to your IRA?".

 If you did not file the 2022 Form 8606 included in your 2022 return, you'll need to fill out a 2022 Form 8606 to record your nondeductible basis for conversion, and mail this form to your designated IRS office.

To enter the nondeductible contribution to the traditional IRA for 2023 in TurboTax Desktop:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had nondeductible contributions before this tax year
10. Enter your basis in the Traditional IRA from your 2022 Form 8606 line 14 (since you had a basis in the prior year, should be $6,000)
11. 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 1099-R conversion: 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. 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"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
12. Answer the questions about the basis from line 14 of your 2022 Form 8606 (should be $6,000) and the value of all traditional, SEP, and SIMPLE IRAs

[honeybadgerm]

Thanks! This was really helpful. I realized in the past years when I did my IRA contribution and conversion to roth in the same year I didn't file a 8606 -- just had the 1099 with the distribution method 2. Did I mainly need this because my conversion happened in the next calendar year? Or have I just been doing it wrong this whole time? For instance, in 2023 I did my backdoor roth contribution and conversion in May 2023. Do I need to record an  8606 form for this? 

Also for fixing my 2022 8606, do I need to wait for this to process before submitting my 2023 taxes? Or can I submit my 2023 taxes with the updated basis I calculated? 

[DanaB27]

To clarify, you made a conversion in 2022 and received a 2022 Form 1099-R with code 2?

It seem you reported only a distribution from the traditional IRA (entered the Form 1099-R) since no Form 8606 was included (conversions are reported on Form 8606 part II). You will have to amend the 2022 tax return to correct this. Do you show the conversion amount as taxable on line 4b? Or did you enter this as a rollover instead of a conversion (4b would be $0)

Yes, you can submit your 2023 return once you have the correct basis calculated for your 2022 Form 8606 line 14.