Roth conversion from traditional IRA with some nondeductible contributions

[rcamner]

I received an 1099-R showing the value of a partial conversion of a Traditional IRA to a Roth IRA.  The "Taxable amount not determined" box is checked.  

I have some nondeductible contributions to the traditional IRA and I've been tracking this annually through Form 8606, so I know my basis in the traditional IRA

I can't figure out where in TurboTax to enter the information so that it will correctly calculate the taxable portion of the Roth conversion.  Right now form 1040 is showing the full amount of the Roth conversion as taxable, and I know this is not correct.

[dmertz · Accepted solution]

After entering the Form 1099-R exactly as received under Wages & Income (or Personal Income) -> Retirement Plans and Social Security -> IRA, 401(k), Pension Plans (1099-R) and answering the immediate follow-up questions to indicate that you converted the money to Roth, click the Continue button on the Your 1099-R Entries page and, when asked, indicate that you made nondeductible contributions to your traditional IRAs.  TurboTax will then ask you to enter the amount of prior-year nondeductible contributions from your most recently filed Form 8606 and will ask for your total 2017 year-end balance in your traditional IRAs.  TurboTax will use these entries to prepare Form 8606.

[rcamner]

Thanks for your quick reply.  The problem is that after answering all the questions and then clicking the Continue button TurboTax doesn't ask me the question about whether I made nondeductible contributions to the traditional IRA; it just goes back to the "Your 1099-R Entries" screen, and when I click Continue there, takes me back to the "Your 2017 Income Summary" page.

BUT, I believe I finally figured it out.  I had not seen that the IRA/SEP/Simple box was checked on the form 1099-R, and that's what triggers the questions!

Thanks again for your help.

[dmertz]

A Form 1099-R without the IRA/SEP/SIMPLE checkbox marked would being indicating a Roth rollover from a qualified retirement plan, not from a traditional IRA.  A Roth rollover from a qualified retirement plan doesn't involve Form 8606, so TurboTax didn't ask the questions you were looking for.

[DukeWeston]

I was also caught out by the poor wording in the Turbotax interview. Unfortunately I did not catch it until after I had filed, and I had to file amended returns.

The wording in TT 2018 is

- Yes, John made and tracked non-deductible contributions to John's IRA

- No, John did not make and track non-deductible contributions to John's IRA 

Without mentioning prior years this question is misleading. In my humble opinion it would be much clearer if it said:

- Yes, John made or tracked non-deductible contributions to John's IRA in any prior year.

- No, John has never made a non-deductible contributions to John's IRA in any prior year.

Intuit developers - please pay attention to this if you are reading this forum.

[jaiswaldeepak]

HI,

Thanks for the article. However, it did not seem to work for me correctly. It did not prorate my IRA basis properly.

In my case, I had over 40K in my IRA with 1170 in non-deductible. I moved about 39K which should mean around 1120 should be moved to Roth without any tax liability. Later, I also contributed 6000 in non-deductible contributions. However, this contribution happened AFTER the rollover so my impression is that it does not count towards calculations for proration. Please correct me if I am wrong here.

In my return, it shows that I have about 5900 in non-taxable contributions. The worksheet does not show any calculations. I am confused as I think I am paying less for 2019.

Regards,

Deepak

[dmertz]

If the nondeductible traditional IRA contribution was made in 2019, it indeed counts because the calculations treat all transactions as if they occurred on December 31, 2019.  If the contribution for 2019 was instead made in 2020, as seems to be the case for jaiswaldeepak, TurboTax might use Worksheet 1-1 to figure the taxable amount instead of lines 6 through 12 of Form 8606 because you made distributions in and nondeductible contributions for the same tax year, indicated by asterisks on lines 13 and 15 of Form 8606.  When using Worksheet 1-1, the contribution for 2019 made in 2020 is treated as if the contribution was made in 2019.

[axtell]

I am doing my 2020 taxes and made a partial conversion to a Roth during the year.  When TurboTax asks for my 2020 year-end balance in my traditional IRAs, do I include the amount that I converted to the Roth or just what remains?  Also, if I made a 2020 contribution to the Traditional IRA in January 2021, should I include that amount in the 2020 year-end balance?  Thank you

[dmertz]

Just what was in your traditional IRAs on December 31, 2020.  Do not include in the December 31, 2020 balance any of the amount that you contributed for 2020 in 2021.

[ThomasM125]

@axtell You would enter the amount that remains in your traditional IRA, don't include the amount converted to the ROTH IRA. You would not include the contribution made in 2021, but make sure you answered the question correctly regarding when you made the contribution. You will be asked if you made the contribution that is applied to 2020 in 2021.