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Should Turbotax be taxing gains on trad IRA during backdoor traditional IRA conversion to ROTH. Didn't expect that in a tax advantaged retirement account?

 
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5 Replies
DianeC958
Expert Alumni

Should Turbotax be taxing gains on trad IRA during backdoor traditional IRA conversion to ROTH. Didn't expect that in a tax advantaged retirement account?

Yes, if you contributed to a traditional IRA account, that was non-deductible, if the IRA account had any gains before it was converted to a Roth IRA account, the gains are taxable upon the conversion.

 

Now that it is a Roth account, when you withdraw the money at retirement, none of the distributions are taxable.

 

How do I enter a backdoor Roth IRA conversion?

 

@chizimeo

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Should Turbotax be taxing gains on trad IRA during backdoor traditional IRA conversion to ROTH. Didn't expect that in a tax advantaged retirement account?

it's your responsibility to be certain your quest for a tax-free conversion is going to succeed before you actually make the conversion.

Conversions can no longer be recharacterized back.

Should Turbotax be taxing gains on trad IRA during backdoor traditional IRA conversion to ROTH. Didn't expect that in a tax advantaged retirement account?

Thanks for your feedback, it just seems counter intuitive that taxes would apply to a traditional IRA account funded with post tax funds, and from which no tax deduction was taken, just by converting it into a different retirement account (a ROTH). 
Appreciate  your thoughts 

AmyC
Expert Alumni

Should Turbotax be taxing gains on trad IRA during backdoor traditional IRA conversion to ROTH. Didn't expect that in a tax advantaged retirement account?

The only taxable part would be any gains. I agree with Diane, if all dollars were after tax, then the same dollars converted are not taxed. The only tax is any money earned between the traditional contribution and the ROTH conversion.

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Should Turbotax be taxing gains on trad IRA during backdoor traditional IRA conversion to ROTH. Didn't expect that in a tax advantaged retirement account?

"and from which no tax deduction was taken"

 

that's not sufficient, your starting traditional IRA must have a zero balance . and so must your ending traditional IRA balance

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