Back door IRA help!

[crystalPP]

As a beginner, I made a mistake from the very beginning. And it tends to mess up my tax return for 2020. Need your experts' kind help here!

In 2019, I made 2* $6000 contribution to a traditional IRA by mistake on 12/24 and 12/26, respectively. After I realized it, I requested to withdraw the excess amount of contribution which was $6000. 

In 2020, Jan 2rd, the withdraw was successful. So I made 2020 traditional IRA contribution of $6000 and convert the total $12000 to a roth IRA. 

Then I got two 1099-R froms for 2020, one form has $6000 in box1, $0 in box 2a, unchecked in box2b, code P1 in box 7 and IRA/SEP/SIMPLE box checked. The other has $12000 in box1, $12000 in box 2a, checked in box2b, code 2 in box 7 and IRA/SEP/SIMPLE box checked. 

When I input the first 1099-R form, there is no tax penalty added, but when I input the second one, it adds up a few thousands which I know it is not correct. All the money I contributed to the traditional IRA is after-tax and I have never got any tax deduction from IRA, so why turbotax calculates so much extra tax for the second 1099-R?

I followed the step-by-step guidance from this thread: https://ttlc.intuit.com/community/entering-importing/help/how-do-i-enter-a-backdoor-roth-ira-convers..., but it just added up the tax. 

Please kindly help!!! Thanks very much!

(p.s. I'll never put myself to this hard situation, just doing the contribution/conversion for the same tax year.)

[macuser_22]

Did you report the 2019 contribution as non-deductible on yiur 2019 tax return with an attached 8606 form with the $6,000 on line 1?     

If not, then yiu need to amend and enter the contribution in the IRA contribution  interview and if you are eligible for a deduction the interview will ask if you want to make some or all  non-deductible.  Make it all non-deductible.     That will produce the 2019 8606 with the $6,000 on line 1,3 and 14.

Enter the 2020 nondeductible contribution the same way.

Use that 2019 8606 line 14 when you enter the 2020 1099-R and are asked for your prior years non-deductible contributions.

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

OR  Use the "Tools" menu  (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

[crystalPP]

Thanks! I did report 8606 for 2019 and it does show $6000 in line 1, 3, 14.

I did the same thing for the 2020 1099-R, still confused why this time it leads to tax penalties, although box 2b "taxable amount not determined" is checked.

[macuser_22]

Where do you see penalties?      What is on the 1040 form line 4a and 4b?

What on on the 2020 8606 form line 3 and 15-18?

[crystalPP]

I found the tax penalty mainly comes after I input $12000 in box 2a, if I leave it blank, everything is fine. 

Those $12000 are totally after-tax, and it should NOT be taxed again.

For the 1099-R which summarizes the distribution of $12000 ($6000 from 2019 & $6000 from 2020 traditional IRA to Roth IRA conversion).

It has $12000 in box1, $12000 in box 2a, checked in box2b, code 2 in box 7 and IRA/SEP/SIMPLE box checked. 

[macuser_22]

What is on the 2020 8606 form line 3 and lines 14-18?

[crystalPP]

Hi, we were married filing jointly. My spouse did the back door IRA conversion in 2019 as well (contribution/conversion done within the same year 2019), so our total distribution in 1040 4a is $6000, and 4b is 0. I guess that is correct, because from my side, I only made the distribution but not conversion in 2019.

[macuser_22]

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@crystalPP wrote:

Hi, we were married filing jointly. My spouse did the back door IRA conversion in 2019 as well (contribution/conversion done within the same year 2019), so our total distribution in 1040 4a is $6000, and 4b is 0. I guess that is correct, because from my side, I only made the distribution but not conversion in 2019.

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I am confused now.   Your original post said you had a 1099-R with $12,000 in box 1.    Now you say that it was $6,000 for the other spouse?      What happened to the $12,000 code 2 1099-R?

[crystalPP]

So far, 2020 form 8606 shows: 

line 3: 6000

line 14: 3

line 16: 12000

line 17: 5997

line 18: 6003

I did put IRA basis as of Dec 31, 2019 as 6000 (because the money sits in traditional IRA and was not converted), is that correct?

[crystalPP]

Hi there,

The original post is just questions for my self only.

I have two 1099-R forms myself. The first one $6000 is for excess amount withdraw, the second one $12000 is for roth IRA conversion.

(My spouse had one 1099-R form in 2020, and that one has no problem when I add it to turbotax.)

[macuser_22]

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@crystalPP wrote:

So far, 2020 form 8606 shows: 

line 3: 6000

line 14: 3

line 16: 12000

line 17: 5997

line 18: 6003

I did put IRA basis as of Dec 31, 2019 as 6000 (because the money sits in traditional IRA and was not converted), is that correct?

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I should have asked for lines 1 & 2 also.   $6,000 on line 3 indicates that either line 1 is blank and you did not enter the 2020 non-deductible contribution or line 2 is blank and you did not enter line 14 form the 2019 8606 in the 1099-R interview when it asked for the past years non-deductible contributions.

[crystalPP]

In my 2020 form 8606, line 1 is $6000, line 2 is 0.

"When it asked for the past years non-deductible contributions", I didn't have that question when I input the 1099-R for $12000. I was only asked about the IRA basis.

So what shall I put for the non-deductible contributions for the past years? I just started saving in 2019, made $12000 after-tax traditional IRA contribution in 2019 ($6000 withdrawal in 2020), shall I just write down as $6000?

Maybe I should start the section all over again?

[macuser_22]

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@crystalPP wrote:

In my 2020 form 8606, line 1 is $6000, line 2 is 0.

"When it asked for the past years non-deductible contributions", I didn't have that question when I input the 1099-R for $12000. I was only asked about the IRA basis.

So what shall I put for the non-deductible contributions for the past years? I just started saving in 2019, made $12000 after-tax traditional IRA contribution in 2019 ($6000 withdrawal in 2020), shall I just write down as $6000?

Maybe I should start the section all over again?

---

Delete the 1099-R and reenter.   You should get these questions in the 2nd part of the interview after the 1099-R summary screen.   (It asks about all 1099-R's so it will probably asks for the spouses 1099-R so pay attention for which spouse it is asking about.)

[crystalPP]

Hi Joe,

Thanks for your screenshots and explanation.

I tried to re-do it, but it's still adding up tax due. Interestingly, after I input the 1099-R, although the next screen says "Good news: You won't owe extra Tax on This Money", but in fact, the federal tax owe number got increased for more than $1k. Looks like TurboTax still treats this (or part of this) as taxable.

I haven't solved my problem yet, it should be very straightforward, but something got wrong here.

[macuser_22]

If you entered the $6,000 like my screenshot then it should be on the 8606 line 2 so line 3 should be line 1+2 = $12,000.

Unless the total 2020 Dec 31 Traditional IRA value was zero (on the next screen) then it will be partly taxable.