Backdoor Roth Being Taxed When All Contributions Were Non-Deductible

[brgeren]

For some reason my 1099R is being taxed, while my wife's is not.  The only difference was the timing of the contributions as follows:

ME

In 2019, I contributed $5500 (I didn't realize the maximum was raised to $6000)

In February 2020, I contributed another $500 for tax year 2019

In February 2020, I contributed $6000 for tax year 2020

WIFE

In 2019 I did not contribute to her account

In February 2020, I contributed $6000 for tax year 2019

**I intended to contribute more in 2020 for tax year 2020 but we didn't get the funds in time so we are going to contribute the $6000 for 2020 in February 2021, and then another $6000 in 2021 for tax year 2021**

When I enter this into Turbo Tax, her 1099R doesn't change our refund due at all, but when I enter mine, our refund goes down by over $1000.  Here is the info from the IRA worksheet (Blank lines are skipped):

Line 1 - 500 (Me); 0 (Her)

Line 2 - 0 (Both)

Line 3 - 500 (Me); 6000 (Her)

Line 7 and 9 - ***** (Me); 5500 (Her)

Line 12 and 17 - 500 (Me); 0 (Her)

Line 27 - ***** (Me); 0 (Her)

Line 28 - 5500 (Both)

Line 29 - ***** (Me); 0 (Her)

Line 30 and 32 - 5500 (Me); 0 (Her)

Lines 52-58 are repeats of 27-32

The ***** are amounts over $10K that I didn't want to show here.  Those were from converting all of my rolled over 401K from prior jobs and paid the appropriate taxes on those so that I could do the Backdoor Roth Conversion every year after.

What is happening in Turbo Tax that is causing my Roth Conversion to be taxed which is incorrect, but my wife's to not be taxed which is correct?

Thanks!

[dmertz]

You need to go back you your 2019 Forms 8606 and make sure that each shows on line 1 all $6,000 of each one's nondeductible traditional IRA contributions made for 2019.  If it does not, you must amend 2019.  Then make sure that the amount on line 14 of each Form 8606 appears in 2020 TurboTax as the corresponding individual's basis in nondeductible traditional IRA contributions for years prior to 2020.  The results on your 2020 IRA Information Worksheet suggest that you have made several errors in making these entries.

Finally, you must enter into 2020 TurboTax the contributions that each of you made for 2020.

[brgeren]

Thanks so much for the reply!

So I deleted the 1099R entries, updated TurboTax, and re-entered the two 1099R.  Then I read your reply and here is the updated data (some numbers changed but the problem remains the same - our tax refund goes down when I entered mine but entering hers has no tax refund change):

2019 Tax Return

2019 Form 8606 Line 1 - 6000 (Both)

2019 Form 8606 Line 14 - 500 (Me); 6000 (Her)

2020 IRS Worksheet

Line 1 - 500 (Me); 6000 (Her)

Line 2 and 3 - 0 (Both)

Line 7 and 9 - ***** (Me); 11500 (Her)

Line 12 and 17 - 500 (Me); 6000 (Her)

Line 27 - ***** (Me); 0 (Her)

Line 28 - 5500 (Both)

Line 29 - ***** (Me); 0 (Her)

Line 30 and 32 - 5500 (Me); 0 (Her)

Line 35 - 6000 (Me); 0 (Her)

Line 36 - 500 (Me); 6000 (Her)

Lines 53-58 are repeats of 27-32

Line 59 - 6000 (Me); 0 (Her)

Line 60 - 500 (Me); 6000 (Her)

So it looks like the update changed the numbers but I'm still having the same problem with being taxed for my 1099R and hers is not taxed as expected.  What should I do?

[dmertz]

It appears that you still have not entered into 2020 TurboTax your $6,000 nondeductible traditional IRA contribution made for 2020 in 2020.  Examine Form 8606 and the IRA Contribution Worksheet in 2020 TurboTax.

[brgeren]

It seems like that is the problem, but I'm doing what I am supposed to based on the questions TurboTax asks me.  So the question is where am I going wrong in TurboTax and how do I fix it?  Somehow my $6000 entry for the 1099R says it is taxable even though I know it is not, but cant figure out how to tell TurboTax that.

[dmertz]

Have you entered your traditional IRA contribution for 2020 under Deductions & Credits -> Retirement and Investments -> Traditional and Roth IRA Contributions and, if given the option, make it nondeductible rather than deductible?  It seem that you have not.

[brgeren · Accepted solution]

Spoke to TurboTax support and it seems like a problem with the software. They are looking into it now