Roth IRA excess contribution and backdoor

[jwn1]

Hi folks, I'd appreciate your help with inputting my retirement contributions into Turbotax. Turbotax is indicating that I have excess Roth IRA contributions and taxable IRA distributions when I don't believe either to be the case.

Short version of my situation: I overcontributed to a Roth IRA in 2020; in February 2021 before filing for 2020 I withdrew the excess contribution into a traditional IRA and then backdoored it back into the Roth IRA.

Long version:

In 2020 I contributed $200 more to my Roth IRA than was allowed. I realized this mistake in early 2021 and recharacterized the $200 + $6 of earnings to a traditional IRA. I then contributed $2,000 to the traditional IRA (after-tax) and converted the total of $2,206 to my Roth IRA for 2020. All of these were done before the 2020 filing deadline and reflected in my 2020 taxes. In 2021, I also made a $6,000 after-tax contribution to the traditional IRA and then converted it to the Roth IRA as well (backdoor Roth). The total amount converted from traditional IRA to Roth IRA was $8,206 ($206+$2,000+$6,000)

This year, I received 4 forms from the custodian: a 1099-R for the Roth IRA showing the $206 recharacterization, a 1099-R for the traditional IRA showing the $8,206 conversion, a 5498 for the Roth IRA showing the $8,206 converted to the Roth, and a 5498 for the traditional IRA showing the $6,000 contributed for 2021 and the $206 of recharacterized contributions.

When I input these forms into Turbotax I'm having two problems: 1) Turbotax insists that I've overcontributed to a Roth IRA and 2) Turbotax says that $6,000 of the distributions is taxable income.

Clearly this extra $6,000 of taxable income would be a big hit in the amount of taxes I owe. Can anybody help me figure out if there's something special I need to do in entering the 4 forms into Turbotax to correctly indicate that there's no tax liability or deductability from any of these transactions?

Thanks so much for anybody who can help!

[DanaB27 · Accepted solution]

First, you can ignore the 1099-R with code R for the recharacterization since you reported it on your 2020 tax return. 

You should have a 2020 Form 8606 with a basis on line 14 of $2,200 to carry over to 2021 (contribution to traditional IRA for 2020 plus recharacterization).

Please follow the steps below to enter your 2021 nondeductible contribution and conversion. Do not enter anything as Roth contribution (delete it if you did enter them).

To enter the nondeductible contribution to the traditional IRA for 2021:

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” since you had a nondeductible contribution before this tax year.
9. Enter your basis in the Traditional IRA from your 2020 Form 8606.
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 warning and then a screen saying $0 is deductible).

To enter the 1099-R 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 "Review your 1099-R info" 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