1099-R and Roth Conversions

[l-andress]

I'm confused about 1099-R and Roth conversions. In 2015 I made a 2014 and 2015 after tax contribution to a new traditional IRA and proceeded to convert the total amount to a new Roth IRA. My 1099-R lists a distribution for the total amount (2014 and 2015 contributions). It seems that since these were after tax contributions that were immediately converted to a Roth, I should not owe any tax. However when I enter the 1099-R, my refund amount goes way down.  Can someone clarify please? Thank you.

[dianekennyb]

On my 1099R, there is box 2a, which is the taxable portion of my rollover, shouldn't I have to pay taxes on this amount? However, TT records the total amount of the rollover has taxable in withdrawals sections, shouldn't it just recorded the taxable? When I enter the contribution to the T-Roth IRA, should it be box 5 (employee contribution) and TT will adjust for the interest earned from my 401K after tax?

[maglib · Accepted solution]

Doing a "backdoor Roth" in TurboTax is a 2-step process.

First, go to Federal Taxes > Deductions & Credits > I'll Choose What to Work On > Retirement and Investments > Traditional and Roth IRA Contributions. Enter the contribution to the Traditional IRA that you made. Depending on your income and if you have a retirement plan at work, TurboTax will either tell you that your contribution is not deductible or it will ask you "Do you want to make your IRA contributions nondeductible?"

Once TurboTax knows that your Trad IRA contributions are nondeductible (that is, you have a basis in your Trad IRA), then enter your 1099-R at Federal Taxes > Wages & Income > I'll Choose What to Work On > Retirement Plans and Social Security > IRA, 401(k), Pension Plan Withdrawals (1099-R). For a Roth conversion, the 1099-R usually has a Distribution Code 2 in Box 7. That means it is an early distribution but an exception applies so there is no penalty.

To check that the right results show, look at your 1040 form. There should be no entry on Line 32 for IRA deduction. The Box 1 amount from your 1099-R should appear on Line 15a of your 1040, but Line 15b should be zero.

(If you are doing this in the current tax year, you can not adjust and it's reportable on a lag (A roth conversion done after year end prior to 4/15) you may need to file a form 8606 for the prior TAX YEAR basis, if you are doing the conversion in the current year for prior year).  Send in the completed 8606 showing the NON-Deductible amounts so it will catch up to your current Tax Return.  (mail in)      

Then prepare the current return, enter the 1099-R,   within the questions to be answered, Do you kept track of Non-Deductible Contributions to Traditional IRA,   Answer YES ..  Now Form 8606 will show the NON-Deductible Contributions you made, to be offset by the amount on the 1099-R.  Any earnings in the IRA will be taxable.  Example case, you contributed $2000 and by March earned $15 dollars.  The 1099R was for $2,015 and the non-deductible contribution was $2000 making the $15 taxable in the current year.   

[volvo05]

I followed the above, but TT still shows part of my conversion as taxable on line 15b, How do I fix that? It won't let me manually change it

[maglib]

@volvo05  do you have other traditional IRA's?  If you do the IRS treats them as one so there isn't a 100% converstion to Roth and some gains may end up taxable.  Say you have $90 in other traditional IRA's with cost of $80 and just opened one for $10 and were making the $10 one a Roth.  The IRS says you actually have $100 with cost of $90 and when you convert the $10 to a Roth it will make $1 taxable....

Otherwise you may have missed filling in a box from your 1099, make sure it's checked exactly as received.

[dianekennyb]

On my 1099R, there is box 2a, which is the taxable portion of my rollover, shouldn't I have to pay taxes on this amount? However, TT records the total amount of the rollover has taxable in withdrawals sections, shouldn't it just recorded the taxable? When I enter the contribution to the T-Roth IRA, should it be box 5 (employee contribution) and TT will adjust for the interest earned from my 401K after tax?

[petersfransen]

did you ever get a good answer for this?  Having same problem this year.  Made contributions and conversions for two tax years in 2017 (i.e., for 2016 and 2017).  1099-R amount covers both conversions, but turbo tax questions only get at tax basis as of 12/31/16 (0), 12/31/17 (0), and 2017 tax year contributions made in 2017 or through April 2018.  There is apparently no place to indicate that 2016 nondeductible contributions were also made in 2017 that would create basis for the 1099-R amount to be fully non-taxable, and putting a higher amount (covering both tax years) for 2017 contributions leads to Turbo tax incorrectly identifying them as excess contributions, subject to a penalty tax.

[maglib]

The 2016 1099-R must be reported in the 2016 return, you have to amend 2016 tax filings for that.  Basically, you know you will get a 1099 for the year you are working on, so you input it in the year you are filing so you won't have to amend the return.  Another note, this is a 2 year old post, so you should start a new post.

[petersfransen]

Thanks maglib.  The question goes to a 2017 1099-R that I just received now.  The conversion event (covering two years worth of contributions) occurred in March 2017, which would be fully reflected in my 2017 return as it was a 2017 event.

However, looking back, it does look like my 2016 Form 8606 reports basis for last tax year (I had been assuming I had reported 0).  So that solves it for me, at least.

[ed_hoveland]

I had the same problem and solved it this way:

I made a Traditional IRA Contribution in the year 2016 (January) for the TAX YEAR 2015.  Then by MARCH 2016 I decided to have it changed to a ROTH IRA.   Thinking now I had a NON-DEDUCTIBLE ROTH IRA CONTRIBUTION.  Evidently this is not the case, you can make a contribution in the NEXT YEAR and say it belongs to the prior tax year (if done before 4/15), BUT you cannot+- do that with mistakes or in and out transactions.  So you need to file a form 8606 for TAX YEAR 2015.  Send in the completed 8606 showing the NON-Deductible amounts so it will catch up to your 2015 Tax Return.  (mail in)      

Then prepare the 2016 return, enter the 1099-R,   within the questions to be answered, Do you kept track of Non-Deductible Contributions to Traditional IRA,   Answer YES ..  Now Form 8606 will show the NON-Deductible Contributions you made, to be offset by the amount on the 1099-R.  Any earnings in the IRA will be taxable.  In my case I contributed $2000 and by March earned $15 dollars.  The 1099R was for $2,015 and my non-deductible contribution was $2000 making the $15 taxable in 2016.   

Good Luck

[ucjade]

I followed step-by-step. but still have problems:

In 2021 I made a 2020 and 2021 after tax contribution to a new traditional IRA and proceeded to convert the total amount to a new Roth IRA. My 1099-R lists a distribution for the total amount of $12,000 and 12,000 in box 1 and box 2a (2020 and 2021 contributions).  Line 4b in 1040 shows 0 now, which is correct. however, Turbo tax indicates I owe 6% penalty of exccess contribution to IRA ($6000 each year) after I followed the "back-door Roth IRA" 2-step process in Turbo Tax.  

what shall I do?

[AnnetteB6]

The problem is in the section where you indicated that you made non-deductible contributions to the Traditional IRA.  The contribution that was made for 2020 should have been reported on your 2020 tax return.  This would have generated a Form 8606 that would show the basis in the Traditional IRA.

For your 2021 return, you should indicate that you have made a non-deductible contribution to your Traditional IRA for 2021 ($6000).  Then, as you go through the questions in that section, indicate that you have made previous non-deductible contributions.  This is where you can include the $6000 contributed for 2020.  

@ucjade

[pjz77]

Hi, I did my 2020 and 2021 nondeductible traditional IRA contribution and converted to Roth IRA immediately in 2021. So, for my 2021 1099-R, there are $14000 (7000 for each year). Don't know how to report this amount without getting penalty and taxed again.

I wonder if you have found out the way to do it right? If so, would you be able to share with me?

Many thanks, Paul

[FangxiaL]

To avoid paying taxes again on the nondeductible IRA contributions:

Follow the two-step process to properly enter your backdoor Roth conversion:

Step 1: Enter the Non-deductible contribution to a Traditional IRA:

1. Open or continue your return 
2. Inside TurboTax, search for ira contributions and select the Jump to link in the search results
3. Select Traditional IRA on the Traditional IRA and Roth IRA screen and Continue
4. Answer No to Is this a Repayment of a Retirement Distribution?
5. On the Tell Us How Much You Contributed screen, enter the amount contributed and continue
   • Enter $7,000 for Your total 2021 traditional IRA contributions
6. Answer No on the Did You Change Your Mind? screen
7. Answer No on Any Excess IRA Contributions Before 2021?
8. Answer Yes, I made and tracked nondeductible contributions to my IRA, OR No, I did not make and track nondeductible contributions to my IRA. If you don't have any other Traditional IRA accounts, you can answer Yes
9. Enter $7,000 for the Total Basis as of December 31, 2020 on the next screen
10. Answer the questions on the following screens, until you reach Choose Not to Deduct IRA Contributions. Select Yes, make part of my IRA contribution nondeductible and enter $7,000 in the box.

Step 2: Enter the Conversion from a Traditional IRA to a Roth IRA

 Inside TurboTax, search for 1099-r and select the Jump to link in the search results

1. Answer Yes to Did you get a 1099-R in 2021?, then Continue
   • If you land on Your 1099-R Entries screen, select Add Another 1099-R
2. Select how you want to enter your 1099-R (import or type it in myself) and follow the instructions
3. Answer None of these apply when you reach the screen Do any of these situations apply to you?
4. Select I converted some or all of it to a Roth IRA on the Tell us if you moved the money through a rollover or conversion screen
5. Next, choose Yes, all of this money was converted to a Roth IRA

To check the results of your backdoor Roth IRA conversion, see your Form 1040:

1. On the left side of your screen, select Tax Tools >>Tools to open the Tools Center
2. In the Tools Center, select View Tax Summary
3. On the left side of your screen, select Preview my 1040
   • Your backdoor Roth IRA amount should be listed on Form 1040, Line 4a  as IRA distributions
   • The taxable amount should be $0 unless you had earnings between the time you contributed to your Traditional IRA and the time your converted it to Roth IRA, and the earnings are taxable
   • Schedule 1, Line 20 IRA deduction, should be blank
4. Select Back on the left side of your screen to return to where you left off in TurboTax

@pjz77

[Anonymous]

Hi @FangxiaL 

This is extremely helpful and clear. Thank you! I followed the steps and see my backdoor IRA taxable amount being $0.

I am experiencing the same exact situation but with tax year 2021 and 2022 (instead of 2020 and 2021). Before doing #9 in STEP 1, do I need to file Form 8606 for 2021 in order for me to establish the basis amount listed in #9 ($7000)? And should I wait for IRS to receive the Form before I file for my tax return this year?

Thank you!