Tax Liability increased after entering Traditional IRA amount

[LarryinDC]

This is similar to other questions but with a difference, I think.

In January, 2025, I did a backdoor conversion of a nondeductible contribution to a Traditional IRA into a Roth IRA.  A balance of $15 was left in the traditional IRA.  

In September, a previous employer 401k was rolled over into the nearly empty traditional IRA account.  Entering the balance of the Traditional IRA as of December 31, 2025 into Turbo Tax results in a tax liability of several thousand dollars.

The monies of the backdoor conversion never intermingled with the traditional IRA rollover.  Why does the tax liability go up so much?  How would I enter this so it does not.

[ReneV4]

There is no way to enter this to avoid tax liability. Here's why. The IRS looks at the value of your Traditional IRA at the end of the year (December 31). Because you rolled your 401(k) into your Traditional IRA within the same calendar year as your conversion, the IRS put all of your Traditional IRAs into the same bucket.

Because of this, you now have a large pre-tax balance in your Traditional IRA on December 31.

The only way to have avoided this was to have a zero balance in all Traditional IRAs on December 31.

If you had rolled that Traditional IRA money back into a current employer's 401(k), it would not have been counted in the calculation.

Now, you should ensure that you enter your after-tax 401(k) funds as the basis to slightly lower your taxable percentage.

[dmertz]

This is the expected behavior.  When you have basis in nondeductible traditional IRAs, until you enter the year-end balance in traditional IRAs, TurboTax is unable to calculate the correct taxable amount of the distribution  on From 8606 Part I because the calculation initially assumes that the year-end balance is zero.  Once you enter the year-end balance, TurboTax corrects the calculation and comes up with the correct, higher taxable amount.