My Roth Conversion is still being taxed and $6,000 is showing on line 4

[chrisjsutton]

In Feb 2020 I made a $6,000 non-deductible contribution to my traditional IRA for the 2019 tax year. I then converted that $6,000 to my Roth IRA that week for the 2019 tax year. For some weird reason, my 1040 on line 4b is showing a taxable amount of $6,000 and I am noticing my federal and state refund have dropped dramatically. I already entered in my IRA deduction, which resulted in a $0 deduction because I am over the income limit, however when I enter my 1099-R information [Box 1 6000, Box 2 6000, Box 2b Taxable amount not determined & Total Distribution both checked, Box 7 2-early distribution (except Roth IRA), IRA/SEP/SIMPLE checked] my refund goes down significantly. Unsure what I am doing wrong here, does making the contribution after Jan 1 2020 require me to do anything additional? Thank you in advance

[KarenM90]

It depends.  It sounds like you may have done a Backdoor Roth Conversion. 

That is a two step process in TurboTax, so you will need to go back through that section again.

The process is relatively long so I am including a TurboTax Help Article Link that will walk you through the process depending on your TurboTax Version:

Backdoor Roth TurboTax Entry

[chrisjsutton]

Hi @KarenM90 ,

That is correct I was attempting to do a Backdoor Roth Conversion. I went through the steps outlined in that support article but I am still showing a taxable amount of $6000 on line 4b of my 1040. I am unsure what I am doing wrong at this point as it appears to be straightforward. Any ideas what I should try next? Thanks in advance

[AnnetteB6]

It sounds like the IRA contribution may not have been marked as non-deductible.  

Take a look at the steps shown in the following link and be sure that you did not miss something, especially in entering the Traditional IRA contribution.  There seem to be more details in the following article than the previous one.

Backdoor Roth IRA Contribution

@chrisjsutton

[chrisjsutton]

Hi @AnnetteB6 

I followed the exact steps outlined in the support case but I am not seeing any changes and line 4b still says 6,000. The IRA deduction summary page says "Your IRA deduction is $0" thank you in advance

[chrisjsutton]

@AnnetteB6 @KarenM90  Any other suggestions? Thank you in advance!

[macuser_22]

Here is my method of a backdoor Roth.

This so-called “back-door Roth” method ONLY works if you have NO OTHER Traditional IRA accounts.  If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself.  Only if you started with NO Traditional, SEP & SIMPLE IRA and ended up with a zero amount in ALL Traditional, SEP & SIMPLE IRA accounts will this Roth conversion not be taxable.

First you must enter your Traditional IRA contributions (if there were 2019 contributions).

IRA contribution
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),,
Retirement & Investments,
Traditional & Roth IRA contribution.

Be SURE to answer the follow up that the are choosing to make this contribution NON-DEDUCTIBLE - if that screen comes up. (DO NOT say that you moved (recharacterized) the money to a Roth) – this is a conversion, not a recharactorazition.

Then enter the 1099-R that shows the distribution.

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),,
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2019.     (Usually zero unless you also made a 2018 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2019 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2019, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.

Also see this TurboTax FAQ:
https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion

[chrisjsutton]

Hi @macuser_22  thank you for the help. I followed the steps but for some reason I am still not seeing the desired effect, 4b is still showing $6000. When I go to wrap up my taxes and it shows me a summary I get the following messages:

"Income too high to deduct an IRA contribution"

Then I get the following table breakdown:

Retirement Income Results

Traditional and Roth IRA Distributions  [Total = 6000, Taxable = 6000]

Pension and annuity distributions [Total = 0, taxable = 0]

IRA Contribution Results

Traditional IRA Contributions [Total Contribution = 6000, Amount Deductible = 0]

Roth IRA Contributions [Total Contribution = 0, Amount Deductible = 0]

Any suggestions on where the issue might be? Thank you again!

[macuser_22]

Oh - I am sorry - missed that this was a 2019 contribution made *in* 2020.

You said:

"In Feb 2020 I made a $6,000 non-deductible contribution to my traditional IRA for the 2019 tax year"

Unfortunate you can only apply the non-deductible (after-tax basis) if a non-deductible contribution that was made in a tax year *prior* to the year of the contribution.  It makes no difference it the contribution was *for* 2019, it was made in 2020 so it does not quality.

The 8606 form that calculates the tax specifically subtracts out any 2019 contributions made in 2020 on line 4 so that they will not apply to any 2019 distribution/conversion.

[chrisjsutton]

@macuser_22 Hi thanks for the quick response back. Just to confirm, because I made the contribution in 2020 I am being penalized? I was under the assumption that you could make a non-deductible contribution until April 15th. As it stands right now it looks like I am paying tax twice, once at the time of earning, and now at tax time with a decrease in my refund.

[dmertz]

The Roth conversion performed in 2020 must be reported on your 2020 tax return, not your 2019 tax return.

[macuser_22]

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@chrisjsutton wrote:

@macuser_22 Hi thanks for the quick response back. Just to confirm, because I made the contribution in 2020 I am being penalized? I was under the assumption that you could make a non-deductible contribution until April 15th. As it stands right now it looks like I am paying tax twice, once at the time of earning, and now at tax time with a decrease in my refund.

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Did you do the conversion in 2019 or 2020?  I am assuming 2019 using funds already in the IRA since you seem to be reporting it on your 2019 tax return.

Do you have a 2019 1099-R reporting it?  If not then this does not apply and yiu report it next year on a 2020 that return with a 2020 1099-R.

Yes, you have until April 15, 2020 to make a 2019 contribution.  However, if  it is a non-deductible contribution, the basis is not retroactive to distributions that occurred before the contributions was made.  The tax law specifically prevents that.

There is no penalty involved, just the normal tax on a conversion.

That basis remains in the account to be used for future contributions and distributions. (There is some disagreement on that as some believe that if the IRA value becomes zero then any reaming basis not used is forfeited.   Before the tax law changed that unrecovered basis could be an itemized deduction, but the TCJA made it non-deductible.   I am in the camp that believes that once a 8606 form reporting basis is filed then that basis remains in the IRA forever until used.)

[chrisjsutton]

@macuser_22 

I made the contribution in 2020 and did the conversion in 2020. If I am understanding correctly, I should report the non-deductible contribution for the 2019 tax year, and report the conversion in 2020. I do not have a 1099-R either