Nondeductible contribution in 2021 is moved to Roth. Why is is being taxed, accdg to TT? What is the correct way to enter this?

[isS3ySugee]

Our IRA basis for 2021 is both 0 and since my husband's 2020 non-deductible contribution was converted in 2021, basis was understandbly $6000.  It seems incorrect that we are being taxed for contribution in 2021 that was never deducted.

[DanaB27]

If you made the contribution in 2020 and converted it in 2021, TurboTax will ask about prior to 2021 nondeductible contributions (step 8 when you enter a 2021 contribution or steps 5-7 when you enter only a 1099-R). Here you can enter your basis of $6,000.

To enter the nondeductible 2021 contribution to the traditional IRA:

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 contributions before this tax year.
9. If you had a basis in the Traditional IRA before then enter the amount.
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 screen saying $0 is deductible).

To enter the 1099-R distribution/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 "Your 1099-R Entries" 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 and value

[isS3ySugee]

Thank you. Would this still work if we contributed it in 2021 and then converted the same year?

[DanaB27 · Accepted solution]

Yes, you will enter the 2021 contribution to the traditional IRA as mentioned above, and then you can select to make them nondeductible in step 10 (or if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a screen saying $0 is deductible.

You can verify your entry by looking at line 4b of Form 1040. If you didn't have any earnings before converting it will show $0.

To preview Form 1040:

1. Click on "Tax Tools" in the left menu
2. Click "Tools"
3. Click "View Tax Summary" in the Tool Center window
4. Click on "Preview my 1040" on the left

Please be aware, if you have any other traditional IRA, SEP, or SIMPLE IRA without basis then each distribution/conversion will have a taxable part and a nontaxable part since you will have to enter the total value of all of them during the retirement section interview (step 7).

[isS3ySugee]

Thank you! I think it’s working now!