Roth Conversion and Pro-Rata rule: how to enter in turbotax

[John261]

My spouse has/had two traditional IRAs for a number of years.  We are in the process of converting to Roth over 2 years, 2021 and 2022.  Prior to starting conversion in 2021, the values were as follows (numbers rounded for simplicity):

• IRA #1:  $100,000 value with a $60,000 basis ($60,000 of earlier years after-tax non-deductible contributions, and $40,000 of gains).
• IRA #2:  Rollover IRA, $150,000 value, rolled over from a previous employer pension plan (full $150,000 is pre-tax).

We're converting these accounts to Roth over a period of 2 years, in 2021 and 2022.   In 2021, we converted the entire balance of IRA #1 and $25k from IRA #2.   At 2021 year-end, the values were as follows:

• IRA #1:  0.00
• IRA #2:  $125,000
• Roth IRA:  $125,000 (new account in 2021)
• I understand the pro-rata rule requires me to spread the $60k basis across the two year conversion.

How do I handle this in turbotax? 

• I entered the two 1099-Rs I received for the withdrawls going into the Roth account. 
• I've also seen that Turbotax is aware of the $60k basis from previous years returns.
• I can't figure out how I spread that basis to our 2022 return next year, after we convert the remaining balance of IRA #2. 
• I've only used "step-by-step" for data entry, but looking at form 8606-S in Turbotax, line 7 says "do not include rollovers."  I'm not sure why it matters that one of the IRAs is a rollover.
• I'm thoroughly confused how to make sure this is correctly entered/handled in Turbotax.

I have searched the community and read the various relevant posts.  I believe I understand the pro-rata rule, but I just don't get how to deal with this in Turbotax.  Thanks for any help/insight you can provide.

[DanaB27 · Accepted solution]

During the interview in the retirement section (step 12), you will be able to enter basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs. Then TurboTax will automatically calculate on Form 8606 how much of the conversion is tax-free and how much basis is left (line 14) to carry over to 2022.

To enter the 1099-R distribution/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?"
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

Line 7 basically only applies if you took a cash distribution from your traditional IRA and this doesn't seem to apply in your case.

[John261]

Thanks for the reply @DanaB27.

• I had entered the individual 1099-Rs correctly. 
• I was confused because I hadn't realized that the questions from your Step 10 and beyond applied to both of the 1099-Rs I had entered, one for IRA #1, a traditional IRA and one for IRA #2, a rollover IRA. 
• I was also confused by the wording on some of these Step 10 and beyond panels, which refer to "traditional IRA" in the singular (not always the total of all IRAs). 
• It also never mentions "Rollover IRA" so I had not included the 2021 year end value of IRA #2, the Rollover IRA.   I guess that's really an IRS wording issue, since line 6 of Form 8606 also leaves out "Rollover IRAs," but apparently they need to be included in line 6.
• Once I included the 2021 year end value IRA #2, the Rollover IRA, Turbotax appears to correctly spread the IRA basis from IRA #1 across both IRAs and both years (2021 and future carryover).

Since the numbers seem to now come out now as I'd expect, I guess I need to just forget about the confusing wording.

Thank you very much for your help!