Backdoor roth - still shows taxable income

[saritaja]

I did 2 backdoor roth IRA conversions last year. Like other articles I've read, I've followed the steps to enter my two 1099-Rs for 2024. However, line 4b in Form 1040 still shows the $14k as taxable amount. I'm using the Windows desktop version of Turbotax, so the steps I see aren't exactly as they are listed in the help guides. This is my first year using Turbotax. a few questions/observations:

1) I notice at the step "what did you do with the money" if I choose "rolled over to another retirement account," my tax refund stays the same, but as soon as I put the amount in the "converted to a roth IRA" box, it goes down.

2) Or am I getting hung up on the basis/value of the traditional IRA part? Since I moved the money to the Roth IRA before December, I am putting 0 as the value of the traditional IRA. Is that correct? 

[fanfare]

a roth conversion is not a rollover and it is not a contribution (common error)

if you converted 100% then IRA balance is zero.

if you don't answer the prompts for Form 8606 you will be in trouble.

@saritaja 

[AnnetteB6 · Accepted solution]

Be sure that you have taken into account the non-deductible contribution to your Traditional IRA that was later distributed and converted to the Roth IRA.  

1 - When you tell the program that you rolled over the money from the Traditional IRA to another retirement account, the amount is not taxable because it is going from one account to another similar account.  When you indicate that the distribution was converted to a Roth IRA, then it is being calculated as taxable since a Traditional IRA with no basis (non-deductible contributions) is different from a Roth IRA.  Once you have entered information about your basis in the Traditional IRA, then indicating that it was converted will not be taxable.  This is the expected result.

2 - As long as you had no Traditional IRA accounts open on December 31, 2024, then the total account value would be zero.

You may have already seen this TurboTax help article, but you should review the section with the instructions to enter your non-deductible Traditional IRA contribution and be sure you have completed those steps.  Also, make note of the link at the bottom of the document in case it also applies to your situation - making a contribution in 2024 for your 2023 tax return if it was not reported on your 2023 return.  

How do I enter a backdoor Roth IRA conversion?

@saritaja 
 

[saritaja]

Thank you for having me visit the link and walk through the steps again. My problem was I was using the Income section for Step 1 when I should have been looking at DEDUCTIONS! Therefore I wasn't seeing the same steps. After walking through the steps in deductions, line 4b reads $0 🙂 Thanks!

[Mlgomez0406]

hi,

I’m facing a similar issue. I’ve re-done the steps several times and 4b is still not 0 for me.  Do you have any tips? I did the backdoor Roth for the first time for $7k. I put 0 in the 2023 basis question. 

thanks!

[DanaB27]

To clarify, did you have any pre-tax fund in your traditional/SEP/SIMPLE IRAs? If yes, then the pro-rata rule applies. This means that with each distribution/ conversion you will have a taxable and nontaxable part. You can see the remaining basis on line 14 of Form 8606, this basis can be carried forward. 

Also, if you had any earnings before you converted the funds then these will be taxable on line 4b of Form 1040.

To confirm, you made a $7,000 contribution for 2024 in 2024 and converted the $7,000 in 2024 and have a 2024 Form 1099-R showing the $7,000?

Please review the TurboTax Online  instructions below.

To enter the nondeductible contribution to the traditional IRA for 2024:

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 of $7,000
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. Enter your basis in the Traditional IRA from your 2023 Form 8606 line 14 (if you had a basis in the prior year)
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 Form 1099-R 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 "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 2023 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs (if you converted all funds then this should be $0).

@Mlgomez0406 

[DanaB27]

You should have reported the nondeductible contribution on your 2023 return and should have a 2023 Form 8606 with a basis on line 14. This will be entered during the interview when TurboTax asks "Any nondeductible Contributions to your IRA?". If you do not get this question then please see Why am I unable to report my 2023 for 8606 basis?

If you do not have a 2023 Form 8606, then you will need to file it with the IRS. Please see If your conversion contains contributions made in 2024 for 2023.

@cosmicwhispers42