Form 8606 and Pro Rata not calculating

[mcintyre210]

I'm amending 2020 tax return to capture missed pro-rata and having issues with TT Form 8606 not grabbing all the info needed through the Step-by-Step option.

Back story:

2020 was the first time I had excess contributions in my Roth IRA due to income limitations.  TT created a form 8606 where it placed $5800 in excess taxable contributions as well as Form 5329 where I paid 6% tax on the $5800.  At the same time I had a SIMPLE IRA with a 12/31/2020 balance of $6879.33 but had no knowledge of the Pro Rata rules until this year.

Upon discovering this error, yesterday I tried to amend the Form 8606 but found no other option than to force override line 6 -18 to get my 12/31/20 SIMPLE balance in line 6 and hand calculate the rest through the form.  I cannot find a pro rata work around or wizard that places SIMPLE balance into line 6 and/or works through the form other than by hand.  This is a problem because I have a taxable balance of $3132 on line 18 that is not auto populating into line 4b of my 1040 so it can calculate the tax I owe.  Line 4b also does NOT let me override it - at best it wants me to attach a 1099-R sheet for the amount and that would mean I took a distribution from the SIMPLE which I did not.

Filing the Form 8606 on it's own without the 1040 is not an option as I owe tax and will need to print out a 1040X with change the in values columns.  Is this an instance where TT does not have the capability to do Pro Rata calculating and I will have to do the 1040X all by hand outside of TT?

I have 4 returns that need amending due to my SIMPLE, the back door Roth's I began in 2021 to avoid the above scenario happening again,  and the Pro Rata issues.

[mcintyre210]

Another issue that is coming up is that the excess Roth was caught the next year, in 2021 and converted via back door Roth to get it out of the Form 5329 going forward.   With that said, do I amend the 2020 to reflect this change that was actually fully realized and reported in TY 2022 for 2020 and 2021?

[DanaB27]

To clarify, you made an excess Roth IRA contribution for 2020, then recharacterized this in 2021 before the due date of the 2020 return as nondeductible traditional IRA contribution. After this you converted the amount from the traditional IRA to Roth IRA in 2021 but forgot to include the SIMPLE IRA balance in the total value of all of your traditional IRA, SEP, and SIMPLE IRA accounts on December 31. 

On your 2020 return you should have reported the recharacterization and made the traditional IRA contribution nondeductible with these steps:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “Roth IRA”
6. Answer ‘Yes” on the “Roth IRA Contribution” screen
7. Answer “No” to “Is This a Repayment of a Retirement Distribution
8. Enter the Roth contribution amount 
9. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount (no earnings or losses) on the next screen.
10. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
11. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (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).

You should be able to correct the value for the years you converted the traditional IRA to Roth IRA following the steps below: 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start/Edit" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. On the "Your 1099-R Entries" screen click "continue"
5. Continue until you get the screen that asks about the value of all traditional, SEP, and SIMPLE IRAs one December 31.
6. Correct the value.

Please be aware, if you show a star symbol next to line 13 and 18 of Form 8606 then TurboTax is using the Taxable IRA Distribution Worksheet per Pub. 590-B to calculate the amounts and lines 6 to 12 of Form 8606 will be blank.

Please note, to claim a refund, you must file an amended return within 3 years after the date you filed your original return or 2 years after the date you paid the tax, whichever is later. If you filed early, count from the April tax deadline (IRS).

Please see How do I enter a backdoor Roth IRA conversion? for additional information.

[dmertz · Accepted solution]

My understanding is that you made a $5,800 excess Roth IRA contribution in 2020 that went unresolved until 2022 when you receive a distribution of the $5,800 excess (information from another of your questions).  There was no recharacterization of this Roth IRA contribution.  Given that you made no traditional IRA contributions for 2020 and no IRA distributions in 2020, there is no reason for your 2020 tax return to include a Form 8606 at all.  The only thing that should be present is a Form 5329 Part IV reporting the $5,800 excess Roth IRA contribution, resulting in a $580 penalty.