Roth IRA Conversion

[stanfordam]

In the 2018 tax year, I was a full time student working part time.  During the year I earned about $

10k leaving me below the personal deduction for the year meaning no tax liability and a full refund of all my federal taxes paid. Further, I made the max contribution (5500$)  to a traditional IRA not knowing about the ROTH option. 

In the 2019 tax year, I converted my IRA to a ROTH and received my 1099-R for the distribution.

 I was unable to deduct the traditional IRA contribution because I had no tax liability in 2018. Should I have filed a Form 8606 in 2018 ?  Do I need a 8606 to prove my cost basis on the conversion in 2019?

[ColeenD3]

You can always amend 2018 to include the 8606, just to be on the safe side. Below are the steps for the entry of a "Backdoor Roth" as per Forrest.

The process is the same on the Desktop version of TurboTax ... just stay in the Step-By-Step mode and don't use the Forms mode.

Doing a "backdoor Roth" in TurboTax is a 2-step process.

First, go to Federal Taxes > Deductions & Credits > I'll Choose What to Work On > Retirement and Investments > Traditional and Roth IRA Contributions. Enter the contribution to the Traditional IRA (TIRA) that you made. Depending on your income and if you have a retirement plan at work, TurboTax will either tell you that your contribution is not deductible or it will ask you "Do you want to make your IRA contributions nondeductible?"

Once TurboTax knows that your TIRA contributions are nondeductible (that is, you have a basis in your TIRA), then enter your 1099-R at Federal Taxes > Wages & Income > I'll Choose What to Work On > Retirement Plans and Social Security > IRA, 401(k), Pension Plan Withdrawals (1099-R). For a Roth conversion, the 1099-R usually has a Distribution Code 2 in Box 7. That means it is an early distribution but an exception applies so there is no penalty.

[dmertz]

What is the code in box 7 of the 2019 Form 1099-R that you received?

[stanfordam]

@dmertz 

2 early distribution, exception applies

[dmertz]

Yes, you should have reported your traditional IRA contribution for 2018 as a nondeductible contribution since the deduction on 2018 Schedule 1 line 32 provided you with no tax benefit.  If your 2018 tax return does not show this on Form 8606 line 1 as a nondeductible contribution you'll want to amend your 2018 tax return to make your contribution nondeductible, filing 2018 Form 8606 along with Form 1040X (your AGI will change by the elimination of the deduction on Schedule 1 line 32 even though your tax liability will not) to show this nondeductible contribution (which will result in the amount on line 1 falling though to line 14) and your 2019 Form 8606 will include this amount on line 2 to be used to calculate the taxable amount of your Roth conversion.

[KaiH]

It is 3/1/20 and I am using the disc version of TT Premier for Windows 10.  When following these instructions, I still get a message: Retirement Income Area will be ready soon.  It gives an anticipated date of 1/21/20.  It occurs when trying to edit the 1099-R forms.  Will this be fixed soon?

[LinaJ2020]

Some of the forms related to the Retirement are not available yet. For example the Form 8915.  To check the update, click here: tax forms

If they don't apply to your situation, you can simply remove them from the program. Here are the steps:

In TurboTax window,  to remove the form, here are the steps:

• Open up your tax return if you have not already done so.
• At the right upper corner, select Forms mode
• In the Forms mode, the left side shows a list of all the generated forms, locate and click on form 8606
• At the bottom of that form, click Delete Form

Also, make sure to update your program, to do so, click here:

• Open the program, from the top, under Online, select Check for Updates.