Form 8606 Calculation Error - Turbotax 2020

[dmertz]

There is no converting to a Roth IRA for a tax year, conversion occur in a particular tax year.  There is no way that a contribution for 2020 made in 2021 or a contribution for 2021 can be converted in 2020 because neither amount was in a traditional IRA in 2020.  The conversion of these amounts in 2021 are a 2021 Roth conversion.

69VanNuys, TurboTax Product Quality and development folks have in the past asserted that the use for the worksheet as you are seeing it being used is correct, which is why I've generally moved on from this issue.

[madhavvi]

Is there any update to this issue? 

[macuser_22]

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@madhavvi  wrote:

Is there any update to this issue? 

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No.  Because it is not an issue.  It follows the published IRS worksheets.

[madhavvi]

Is there a possibility of TurboTax including worksheet in tax return to avoid IRS questions given this may result in a more favorable tax treatment for non deductible contributions as part of a Roth back door conversion than instructions on form 8606?

In my case taxable part of conversion is $0 following worksheet but is approx $100 (due to $103 balance in a SEP IRA at end of 2020) if I followed instructions on form 8606. 

[macuser_22]

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@madhavvi  wrote:

Is there a possibility of TurboTax including worksheet in tax return to avoid IRS questions given this may result in a more favorable tax treatment for non deductible contributions as part of a Roth back door conversion than instructions on form 8606?

In my case taxable part of conversion is $0 following worksheet but is approx $100 (due to $103 balance in a SEP IRA at end of 2020) if I followed instructions on form 8606. 

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That is the reason that most tax software providers are using the worksheet now.

The worksheet is there if you print all form and worksheets or use the forms mode with the desktop version.

It is  not included as part of the tax return because the IRS has not made it a form and there are no e-file specifications (schemas) for it.     TurboTax cannot submit anything to the IRS that the IRS e-file computer is not programed  to accept.   If you mail file you can print it and attach it to your paper return.

[macuser_22]

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@madhavvi  wrote:

Is there a possibility of TurboTax including worksheet in tax return to avoid IRS questions given this may result in a more favorable tax treatment for non deductible contributions as part of a Roth back door conversion than instructions on form 8606?

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I had a hard time wrapping my feeble brain around this also - how could a contribution made in 2021 for 2020 apply to a 2020 conversion? - did not make sense.

But it has been pointed out to me that the actual law that Congress wrote that allows prior years contributions to be made up to the due date of the prior years tax return states that the contribution made before the due date is "deemed to have been made on Dec 31 of the preceding tax year" which makes it a 2020 contribution made in 2020 for tax purposes .    

So it can be applied to the 2020 conversion which is probably the reason for having the IRS worksheet 1-1, otherwise it would not be allowed under the normal 8606 rules.

[madhavvi]

I guess the problem I have with this is that if contribution in following tax year counts in prior tax year for purposes of assessing what portion of deductible contributions are taxable when converting a particular traditional IRA with non deductible contributions to a Roth IRA, this does not count in assessment of total fair market value of all traditional and SEP IRAs which is assessed as of Dec 31 2020. It just seems a loophole in worksheet that potentially benefits tax payer if they delay making contribution to an IRA for 2020 instead of on Dec 31 to Jan 1 of following year!

[andsmi5521]

Hi Dmertz,  I heard you are an expert on this. I read this thread and saw that turbotax uses 590b 1-1 worsheet. however,My 8606 line 5 , line 13 and line 14 have incorrect entries. Is this an expectation of using worksheet 1-1?   I contributed $7000 to traditional IRA in May 2020 and converted all to Roth IRA.  My total basis in traditional IRA should be $0 for 2020 and earlier years (line 14), and line 13 should be $7000.  But TT gave the reverse instead, line 13 is 0 and line 14 is $7000.  My line  5 should be $7000 but TT left it blank. (my line 3 is $7000 which is correct, line 4 is correct- blank as I didn't contribute in 2021 from Jan -Apr 15).   I called TT help line twice and started a ticket but nothing has happened. The investigation number is 12826. Can you shed some light? I am concerned my total basis in traditional IRA is carried forward incorrectly to the next year.  It should be zero, but TT 8606 form says $7000.

[macuser_22]

Did you enter the 1099-R for the conversion and answer yes to the "did you track non-deductible contributions"  question?

What is on the 8606 line 16 & 17?

[andsmi5521]

Hi Champ,

yes.  I entered the 1099-R for the conversion and answered yes to the "did you track non-deductible contributions"  question?  2 separate help line agents walked me through (or watched me) entering through calculations and decided there was an error, so one of them gave me an investigation ticket number because she said someone reported a similar issue.

What is on the 8606 line 16 & 17?--. both are blank on my 8606 form.  line 18 is also blank. TT did tell me I don't have to pay tax for this conversion. 

I also checked the IRA worksheet,  basis carryover: line 3 is right after the latest update (0),  a few weeks ago, it showed an incorrect number.  line 36 still shows  $0 (conversion contribution not taxable). I overrode it and made it $7000 hoping that it will fix line 13 or 14 in 8606, but it did not. Thanks for the quick reply!

[macuser_22]

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@andsmi5521 wrote:

What is on the 8606 line 16 & 17?--. both are blank on my 8606 form.  line 18 is also blank. TT did tell me I don't have to pay tax for this conversion. 

That indicates that the conversion was not entered.

What code is in box 7 on the 1099-R?   Is the IRA/SEP/SIMPLE box checked?

[macuser_22]

Also, is this a joint return?   If the 8606 is a 8606-T (Taxpayer) then is the 1099-R for the first listed person on a joint return?

You would see what you are getting if the contribution was made for one spouse and the 1099-R entered for the other spouse.

[andsmi5521]

Hi Champ,

The box 7 has an entry 2, IRA.SEP/SIMPLE has a X.

it is a joint return. the 1099-R belongs to the spouse (the 2nd person). I checked the second person.

thanks,

[macuser_22]

So is the 8606 a 8606-S form?

[andsmi5521]

8606-S.   thanks for clarifying. I didn't know the difference as I looked at the "printed version.    it is the 8606-s when I tried using the Form version in the software