How do I report Backdoor Roth, and a rollover from 401K to Traditional IRA to fidelity in TT using PRO RATA rule. Backdoor was first, and then rollover later in 2023.

[kata123]

I received 2 10099-R from Fidelity, Backdoor and rollover amount. No balance in Traditional IRA prior to 2023.

[dmertz]

The relative timing of the Roth conversion and the rollover of the 401(k) to the traditional IRA is irrelevant.  By not having a zero balance in traditional IRAs on December 31, 2023 you have caused the Roth conversion to be largely taxable and a substantial amount of your basis in nondeductible traditional IRA contributions to remain in your traditional IRA to be applied to future distributions.  You'll have some amount basis in nondeductible traditional IRA contributions in your traditional IRAs until you have a zero balance in traditional IRAs at the end of some year.  Unfortunately, rolling over a 401(k) to a traditional IRA in the same year that the individual is trying to use the backdoor Roth strategy is not an uncommon mistake.

[kata123]

Thanks for your response. I do have balance in Traditional IRA at the end of December 31 2023. I can calculate based on the remaining balance in Traditional IRA at the end of 2023 using pro rata rule, and the already taxed amount converted via backdoor Roth, my question is, what do I enter in TT to get the portion of the backdoor Roth that is taxable income? Currently it shows zero taxable income based on the answers provided to TT questions, and I know zero is not correct. 

[dmertz]

Failing to show the appropriate amount as taxable usually means failure to enter into TurboTax the year-end value in traditional IRAs that needs to appear on line 6 of Form 8606 (or on Worksheet 1-1 from IRS Pub 590-B that TurboTax uses when there are also nondeductible traditional IRA contributions made for the year).  Be sure to click the Continue button on the page that lists the Forms 1099-R that you have entered and TurboTax will ask you to enter the year-end value in your traditional IRAs.  You'll see the taxable amount of the Roth conversion determined on Form 8606 Part I and Part II.  The amount on line 18 will be include on Form 1040 line 4b.

[kata123]

Thanks for your detailed explanation. "Step by Step" did not ask me to put the year end Traditional IRA amount, so I had to enter in the "Forms" screen of IRA Information Worksheet Part 1 line 2. This also auto populated the same amount n Part IV line 18.  By manually adding end year Trad. IRA, Part V line 35 (Conversion contributions taxable at conversion) auto populated the entire Pre-Tax amount that was rolled over from 401K to Traditional IRA, and the Federal Tax amount has increased considerably. I may have to try filling the worksheet 1-1 of Pub. 590-B  to see why it is still giving me incorrect answer. Any suggestions on what I may be doing wrong would be greatly appreciated.

[dmertz]

TurboTax didn't present the question that asks for your year-end balance because you did not continue through the entire 1099-R section.  It's a common user error.  Entering it directly on the IRA Information Worksheet accomplishes the same thing.  Numerous times I've suggested to TurboTax Product Quality that they flag an error for an empty year-end value when Form 8606 is required to calculate the taxable amount of a traditional IRA distribution, but it falls on deaf ears despite the pervasiveness of the problem.

"By manually adding end year Trad. IRA, Part V line 35 (Conversion contributions taxable at conversion) auto populated the entire Pre-Tax amount that was rolled over from 401K to Traditional IRA, and the Federal Tax amount has increased considerably."

That's the expected result.  I suspect that your Form 8606 and Worksheet 1-1 are now correct and there is nothing more that needs to be changed.

[kata123]

Thanks for your response. I am finally getting my manual numbers with pro rata rule and the TT numbers are the same for taxable portion of backdoor ROTH. Just one question, TT shows the correct Traditional IRA end of year 2023 carryover for me, but for my spouse it shows the entire backdoor amount as the carryover even though she has zero balance in Traditional IRA. It should be zero, just like previous years. I was the only one that did rollover money to Traditional IRA.

[dmertz]

If your spouse did a Roth conversion from your spouse's traditional IRA, perhaps you failed to mark the IRA/SEP/SIMPLE box on TurboTax's 1099-R form reporting the distribution from the traditional IRA.  Also make sure that the 1099-R form in TurboTax was assigned to the correct spouse.

[kata123]

Thanks for your response. I just changed the selection to question "what did you with the money from Fidelity?" I selected " did something else with it", and everything is fine. It shows zero for the basis at the end of 2023.