Backdoor Roth conversion showing a penalty

[alanb54321]

I converted $35,000 from my traditional IRA to a Roth.  I believe have done what the instructions said, but the system says I will owe a penalty for excess contribution to a Roth.  

[DanaB27 · Accepted solution]

Please make sure you do not enter a Roth contribution under IRA contribution in the Deduction & Credit section. Please delete the entry:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Deselect “Roth IRA” and confirm the deletion of the Roth contribution.

Please follow these steps below to enter you backdoor Roth.

To enter the nondeductible contribution to the traditional IRA for 2021:

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 contribution 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 warning and then a screen saying $0 is deductible).

To enter the 1099-R conversion made in 2021: 

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 "Review your 1099-R info" 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 from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[_a_d_]

I am facing a similar problem in my tax returns. Even after removing the Roth IRA i see a penalty getting charged. Can you please suggest what am i doing wrong. 

Regards,

Abhinav 

[DanaB27]

To confirm you made a nondeductible Traditional IRA contribution for 2023, converted the funds in 2023, and followed the instructions above but getting a warning about an excess Roth IRA contribution?

Please make sure that you say "No" to the recharacterized question on the “Did You Change Your Mind?” screen or don't enter anything on the "Tell us how much you Transferred" screen during the traditional IRA contribution interview.

If this doesn't solve your problem it would be helpful to have a TurboTax ".tax2023" file. You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Online: 

1. From the left menu select Tax Tools. 
2. Then select Tools below Tax Tools. 
3. A window will pop up which says Tools Center.  
4. On this screen, select Share my file with Agent. 
5. You will see a message explaining what the diagnostic copy is. Click okay through this screen and then you will get a Token number. 
6. Reply to this thread with your Token number and add @DanaB27. This will allow us to open a copy of your return without seeing any personal information.  

The instructions for TurboTax Download: 

1. On your menu bar at the very top, click "Online"
2. Select "Send Tax File to Agent"  
3. Click "Send"
4. The pop-up will have a token number
5. Reply to this thread with your Token number and add @DanaB27. This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

@_a_d_ 

[_a_d_]

Thanks @DanaB27 . Are the steps you suggested to convert traditional IRA into Roth IRA? With these steps, i am able to only convert 6500 from traditional IRA to Roth IRA. Are there different steps to move pre tax 401(k) to Roth IRA? In all i want to move around 20k into the Roth IRA account. 

Also, one additional information, i haven't made this 20k contribution yet (Mar'2024) for 2023 tax year. Based on this discussion, i can move this money to IRA or 401k account . Please let me know if this will be a problem ?

Regards,

AD

[_a_d_]

@DanaB27 , also, i have sent the diagnostic file. My token number is 1214025.

[DanaB27]

If you made contribution to a 401(k) then you do not enter them as IRA contributions. Please delete the IRA contribution entry:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “None of the above”
4. Confirm deletion

If I understand you correctly you did not move the funds to the Roth IRA yet? You will move then in 2024? Then you will not report this on the 2023 tax return.

Next year when you receive a 2024 Form 1099-R for moving the funds from the 401(k) to the Roth IRA in 2024 then you will see these follow-up questions (assuming it is directly transferred and has code G in box 7) :

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. On the "Did you move this money from a 401(k) to a Roth 401(k)?" screen answer "No"
5. On the "Did you move the money to a Roth IRA?" screen answer "Yes"

[_a_d_]

Thanks a lot @DanaB27 .

I have already invested 22.5k in self employed 401k (employee contribution)  and another 10k (employer contribution). Beyond this, i want to put another ~22k via the backdoor roth route. Given i am doing the backdoor route the first time i am not sure where i need to invest the 22k and how to 1/ roll it Roth and 2/ report the same in Turbotax. 

[DanaB27]

To confirm, you want to make after-tax contributions to you 401(k) and then convert it to Roth IRA (Mega Back Door Roth)?

If yes, then the after-tax contributions are not entered into TurboTax. And you will report conversion when you get the 2024 Form 1099-R on your 2024 tax return.

Please see The Mega Backdoor Roth using a Solo 401k Plan and Mega Backdoor Roth IRA and the Solo 401k for additional information.

@_a_d_ 

[druznak]

Last year we did our first backdoor Roth on April 1, 2023 for the tax year 2022. We contributed $6,000 for my wife and me.  This year I received a 1099R for 2023 that lists the full amount of my contribution $6,552 ($552 gain in traditional IRA) that was converted to the Roth.  It lists the full $6,552 as taxable income.  We have tried following the backdoor Roth instructions but continually get a huge additional penalty of $1600 on our taxes. 

I have seen articles about amending 2022s returns.  Am I not supposed to enter this information for our 2023 taxes?  We have not contributed to an IRA for 2023 but are planning to do so before tax day this year.  We are at a loss and I have no idea what to do.  None of the instructions are working and I am worried we are going to get hit with huge penalties.  PLEASE HELP

[DanaB27]

Please make sure you do not enter the amount contributed for 2022 in the traditional IRA  contribution section on your 2023 return. The contribution for 2022 belongs on your 2022 return. You should have a 2022 Form 8606 with the basis on line 14 and this will be entered in the follow-up questions on your 2023 return when you enter Form 1099-R for the conversion.

Please see  How do I enter a backdoor Roth IRA conversion? for detailed instructions. Please review the "If your conversion contains contributions made in 2023 for 2022" section in the FAQ.
 

@druznak