Roth Backdoor Conversion

[LaughTrack]

I am getting taxed on form 5329 for a Backdoor Roth conversion.   I don't understand if this is correct or not.

[DanaB27]

No, you should not get a penalty. Which part on Form 5329 is filled out? Is it the excess contribution penalty? Did you enter the Roth Conversion as a Roth contribution and got a penalty warning?  

Please review the steps below. If you need more help please provide additional details.

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
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” if you had a nondeductible contributions before this tax year.
9. If you had a basis in the Traditional IRA before then enter the amount.
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 screen saying $0 is deductible).

To enter the 1099-R distribution/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

[LaughTrack]

Thanks for the response.   It is Part IV  of 5329 that is filled out and says my Roth IRA conversion amount is an Excess Contribution.  (I am not otherwise eligible for a Roth contribution.)  I will follow your tips and see if that helps.

[LaughTrack]

I have now tried to follow your steps, but nothing changes and I still have charges on form 5329 which says they will be annual!

[LaughTrack]

I never get to one of your questions on the 1099-R:  "Tell us if you moved the money through a rollover or conversion" or the subsequent question:  I converted some of all of it to a Roth IRA"

[LaughTrack]

I seem to have fixed it by NOT counting the Roth contributions (from the traditional IRA's) as Roth Contributions in 2021.   Does that work?   Or did I cause other problems?   I did label them as Roth Contributions in the 1099-R section that asked what I did with the distribution.

[DanaB27]

It seems you have entered a Roth contribution and that causes the excess penalty. Please delete the Roth contribution by unchecking Roth IRA and confirming the deletion. Please only enter the traditional IRA contribution and make it nondeductible.

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"

If you are using TurboTax Download the screens will be a little different for the 1099-R:

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 “What Did You Do With The Money” and choose “I moved it to another retirement account”
5. 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"
6. On the "Your 1099-R Entries" screen click "continue"
7. Answer "yes" to "Any nondeductible Contribution to your IRA?"
8. Answer the questions about the basis and value

If you still don't get the screens then please tell me what your code is in box 7. Did you check the IRA/SEP/SIMPLE box?

@LaughTrack

[LaughTrack]

We each got there.   I think this is solved.  Thanks.