I have a 1099-R that has after tax contributions converting from IRA to Roth for the last 2 years. TT thinks that I need to pay taxes. How do I fix that?

[rvijay]

I have only 1 1099-R since it was funded in March 2021 for both 2020 and 2021

[DanaB27 · Accepted solution]

To verify, did you enter your 2020 contribution on your 2020 tax return and made it nondeductible? If yes, you should have a 2020 Form 8606 with a basis on line 14 that will get carried over to 2021. If you did not enter the 2020 contribution then you will have to amend your 2020 tax return to get Form 8606 created and filed. 

If you need to amend your 2020 tax return you will enter the contribution with these steps to make it nondeductible:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “traditional IRA”
4. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
5. Enter the amount you contributed for 2020
6. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
7. 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).

On your 2021 tax return

To enter the nondeductible contribution to the traditional IRA:

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 for 2021
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” since you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2020 Form 8606 line 14 (should be the amount you contributed for 2020).
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: 

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 "Your 1099-R Entries" 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

[rvijay]

Thank you for the detailed answer. I had not amended the 2020 returns. I try to do it as you suggested, but now it is telling me that I will have a penalty. (I couldn't jump to IRA contributions, the search did not fetch me that) like you said but found the equivalent wizard. Let me try if I can get to that screen

[DanaB27]

To verify, you entered the contribution on you your 2020 amended return but now it states you have an excess contribution? Or is it when you enter the information on the 2021 return that you get the penalty warning?

To confirm, you had enough taxable compensation and only contributed/ entered no more than $6,000 each year ($7,000 if you're age 50 or older) in the IRA contribution section?

Please review the steps carefully, if you had enough taxable compensation then you should not get an excess contribution message. 

Please be aware, if you get a message with the warning that you cannot deduct the traditional IRA contribution because your income is too high then this is nothing to worry about since you want to have the contribution nondeductible.

@rvijay

[rvijay]

Thank you, Dana. I forgot to tell you that I had made a mistake in following your instructions correctly. Once I did exactly what you said, it totally helped me solve the problem.

Thank you again for your expertise. You saved me a lot of trouble