Roth IRA Conversion

[chesapo09]

Hi,

I have a traditional IRA that I have used to perform 'back door' Roth IRA conversions for several years.

In 2021, I converted $50k from my traditional IRA into my existing Roth IRA.

Turbo tax says that I now owe $25k for this conversion?

That seems wrong?

I would appreciate any help, 

Thank you,

Nick

[DanaB27]

Please be aware, that conversions are taxable unless you had a basis in the traditional IRA (nondeductible contributions). If you had a basis then the earnings will still be taxable. Also, if you had other pre-tax funds in the traditional IRA then the pro-rata rule applies and each distribution/conversion will have a taxable and nontaxable part.

Please make sure your enter your basis correctly from your last filed Form 8606 line 14 during the interview.

To enter the 1099-R conversion: 

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" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
12. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[chesapo09]

thank you!
I am still confused - 

1.  the $50k that i transferred from my traditional IRA was filled with post-tax dollars

2.  turbo tax shows that i am paying 2 taxes on this $50k:

#1 tax = capital gains tax

#2 =  IRA distributions taxable

but...why am i paying an 'IRA distributions taxable' tax when i filled this traditional IRA with post-tax dollars?  i am taxed 3 times:

1.  income tax - this makes sense...but the 2 points below are confusing:

2. IRA distributions tax (for Roth conversion)?

3.  capital gains tax (for selling my investment)?

[chesapo09]

do you have a chat feature that I can walk thru a few questions with you?

I would greatly appreciate your help

[DanaB27]

You should only report the 1099-R for the conversion and then the taxable part will show on line 4b of Form 1040 (if all contributions were after-tax then this would be only earnings). You shouldn't report the gains separately. Where are you seeing the capital gains tax?

To confirm you only made after-tax (nondeductible contributions) to the traditional IRA? You did make any pre-tax (deductible) contributions? What was the basis on your last filed Form 8606? 

@chesapo09

[chesapo09]

I cannot seem to attach a photo here?

[chesapo09]

The capital gains tax shows up on my screen from Turbo Tax when I compare 2020 to 2021 income

[chesapo09]

And Yes, all my contributions to my traditional IRA are always 100% after-tax.

I only use my traditional IRA as a temporary location to later on move money into my Roth IRA.

Problem is that I got lazy and I left $50k sitting in my traditional IRA and forgot to continuing my annual Roth IRA conversion.

[chesapo09]

how do i find form 8606?

[chesapo09]

I reviewed my 1099R and entered my 1099R into turbo tax as noted here:

I did not see a 'what did you do with this money' statement from turbo tax after I entered my 1099R info

[DanaB27]

The capitals gains must come from your Form 1099-B. Did you have an Investment account separate from the IRA? Do not enter any sales from the IRA here.

You will need to check your tax records for your last filed Form 8606 and then enter the basis listed on line 14 during the interview.

After you enter your Form 1099-R details click "continue" to get to the follow-up questions.

@chesapo09