Non-deductible IRA Contribution Not Registering

[p3keith]

$500 of my $6,000 total 2020 IRA contributions were non-deductible.  I converted that non-deductible $500 to a back door Roth IRA in March of 2020.  The other $5,500 was contributed to a non-deductible IRA and then recharacterized to a Roth in January of 2021.

When asked in TT how much I contributed to to a traditional IRA I entered $6,000.

When asked how much I switched from a Traditional IRA to a Roth I entered $5,500.

I then select Yes when asked if I made any non-deductible contributions to my IRA from prior years (I did in 2019).

It then asks for my total basis as of 12/31/2019.  That value is $6,000 (the amount I contributed to my non-deductible IRA in 2019).

It then asks the value of my traditional IRA's on 12/31/2020. 

Question 1:  Is this the value of my non-deductible IRA account or any traditional/deductible accounts I have?  If the non-deductible amount, this value only shows shows the contributions I made for 2020 but then recharacterized last month. The non-deductible amount of 2019 contributions in that account at the end of 2020 was zero because they were all converted to a back door Roth IRA with the $500 of 2020 money I converted in March of 2020.  Should I enter zero for the value or should I enter the actual amount of the account, even though that is all money I recharacterized in January of 2021?

Question 2:  My TT forms do not show the $500 non-deductible IRA contribution I made for 2020.  They capture it as a deductible/traditional IRA contribution.  I need this to show as the non-deductible contribution of $500 for 2020 that was converted in March of 2020.  This conversion is captured on the 1099-R info I reported to TT under the 1099-R section.  I just need the $500 to show up as non-deductible under the IRA section.  How do I make that happen?

Thanks!

[ThomasM125]

For your first question, you would enter the value of all of your traditional IRA's at end of year, which would include non-deductible contributions.

For the $500 non-deductible IRA contribution, when you add your IRA contribution in TurboTax, you should come to a screen that says Choose Not to Deduct IRA Contributions where there will be an option to make part of your contribution nondeductible. You should enter the full amount of your non-deductible contributions for 2020 there.

[p3keith]

Thank you for your response.  Unfortunately, the option to declare part of my contributions as non-deductible never appears.  Is there a way to enter that manually through the "forms" option on TT desktop? Or if I search for it, is there a "jump to" function in the search results that will bring me to that section in the step by step option in TT desktop?

Also, why does my return drop precipitously when I enter the traditional IRA amount at 12/31/2020? It appears to drop by my calculated tax rate.  In my situation, the amount I am entering is all from a non deductible IRA account.   Why would my refund amount go down? This non-deductible IRA account only contains after tax contributions, all made in 2020; contributions that I later re-characterized as Roth in January of 2021.

If my refund goes down when entering this amount, is TT thinking I got a deduction for this amount and is now reversing it? 

Thanks!

[DaveF1006]

It depends. I think what happened is that you first entered your traditional IRA contribution, the program thought it was deductible and your refund meter spiked. As you started entering more information into your return and choose not to deduct the IRA contribution then your refund dropped because it was no longer a deductible contribution. This would be my guess.

[macuser_22]

"When asked how much I switched from a Traditional IRA to a Roth I entered $5,500."

That is incorrect.    That does NOT make it non-deductible, That is a recharacterization (saying that the contribution itself should be a Roth contribution  and NOT a Traditional IRA contribution.    If you could contribute to a Roth yiu would not be doing a backdoor Roth.

See below for all the directions.

The "Backdoor Roth" does not exist in tax law. It is a procedure used by some to take advantage of a quirk in tax law that allows making a non-deductible contribution to a Traditional IRA when one cannot contribute to a Roth IRA, and the immediately converting the Traditional IRA to a Roth IRA, thereby getting the money into the Roth via "backdoor" tax free.

That "procedure" can only work of all these requirements are met:
1) No Traditional IRA account whatsoever can exist (that includes any SEP or SIMPLE IRA accounts) at the start. If existing IRA's contain any before-tax money or earnings then it will be partly taxable.
2) The Tradition IRA contributions must be reported on a 8606 form as non-deductible.
3) The conversion to a ROTH must be shortly after the contribution to avoid taxable gains.
4) The entire Traditional IRA value must be zero that the end of the year of conversion.

Otherwise the conversion will be partly taxable.

First you must enter your Traditional IRA contributions (if there were 2020 contributions).

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

Be SURE to answer the follow up that the are choosing to make this contribution NON-DEDUCTIBLE - if that screen comes up. (DO NOT say that you moved (recharacterized) the money to a Roth) – this is a conversion, not a recharactorazition.

Then enter the 1099-R that shows the distribution.

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),,
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2020.     (Usually zero unless you also made a 2019 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2020 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2020, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.

Also see this TurboTax FAQ:
https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion

[p3keith]

Thanks for the insight, Dave.

I am not sure that is the case.  The IRA money I entered as a traditional IRA was all recharacterized to Roth when asked if I recharacterized any of my contributions.  The deduction as a traditional IRA was eliminated at that point. 

Odd thing is that this question on the "Traditional IRA balance on 12/31/2020" is asked in two different spots in TT:  Once under the IRA section and again under the 1099-R section.  When I enter the full balance amount in the IRA section, nothing happens.  When I enter it in the 1099-R section, that is when the refund decreases.  I also tried messing around -with the program and put $0 in the 1099-R section and the full dollar amount in the IRA section.  The refund did not change at that point.  Then I put the full dollar amount in the 1099-R section and put $0 in the IRA section and the refund went down.

[p3keith]

Thanks, macuser_22.

Just to be clear, I did recharacterize the $5,500 of 2020 non-deductible contributions to a Roth last month.  I did not convert that money.  What happened was $500 of my non-deductible 2020 contributions was mistakenly converted in March of 2020 when my investment manager gave the order to convert my 2019 non deductible contributions.  Again, that was a mistake; the $500 of 2020 money got wrapped up in the conversion.  Only my 2019 non deductible was supposed to be converted and the plan was to wait and see if I was under the income limit for 2020 and would then recharacterize those contributions.  I was under the limit this year and did the recharacterization of the remaining $5,500. 

Unfortunately, that $500 is the problem.  It was converted in March of 2020 when the 2019 conversion was done.  This 2019 conversion of $6,000 and the mistaken conversion of $500 show up on my 1099-R for 2020.  Unfortunately you can't recharacterize converted funds. So I need to show the $500 as a non-deductible contribution on my taxes this year because that was when the conversion happened and is reflected in my 1099-R.

[macuser_22]

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@p3keith wrote:

Thanks, macuser_22.

Just to be clear, I did recharacterize the $5,500 of 2020 non-deductible contributions to a Roth last month.  I did not convert that money.  What happened was $500 of my non-deductible 2020 contributions was mistakenly converted in March of 2020 when my investment manager gave the order to convert my 2019 non deductible contributions.  Again, that was a mistake; the $500 of 2020 money got wrapped up in the conversion.  Only my 2019 non deductible was supposed to be converted and the plan was to wait and see if I was under the income limit for 2020 and would then recharacterize those contributions.  I was under the limit this year and did the recharacterization of the remaining $5,500. 

Unfortunately, that $500 is the problem.  It was converted in March of 2020 when the 2019 conversion was done.  This 2019 conversion of $6,000 and the mistaken conversion of $500 show up on my 1099-R for 2020.  Unfortunately you can't recharacterize converted funds. So I need to show the $500 as a non-deductible contribution on my taxes this year because that was when the conversion happened and is reflected in my 1099-R.

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I am trying to understand this.

If you made a $5,500 2020 Traditional IRA non-deductible Traditional IRA contribution and had the IRA custodian move (characterize) that to a Roth then that money is in the Roth and not the Traditional IRA.

Then $6,000 of other Traditional IRA money was converted to the Roth.    $5,500 was 2019 contributions. 

Where did the additional $500 come from if it was already in the Roth if you had already recharactorized it to the Roth - it would not be in the Traditional IRA at all?