Traditional IRA to Roth IRA Conversion

[dramzinski]

I have a 401k through my employer that I contribute to.  My spouse does not have an employer sponsored retirement plan.

In early 2021, we opened a Traditional IRA account for my spouse and contributed $6000 to it for 2020 and another $6000 to it for 2021 with post tax money.  We also claimed the IRA deduction for 2020 and 2021 and were able to take the full amount.  After doing some research, we should not have claimed the deduction.

In 2022, we contributed $6000 again (post tax money), but we are classifying the full amount as non-deductible.

Near the end of 2022, we decided to do a Backdoor Roth conversion.  When the conversion was done, the $12000 from 2020-2021 was now only $9500 due to investment losses, but the $6000 from 2022 was never invested and as such there are no earnings on the 2022 contributions and it was fully intact.

Following the steps provided in the Community to enter the Backdoor Roth into TurboTax, it has the $9500 from the 2020-2021 contributions as taxable.  Should that $9500 really be taxable when converted?  Technically, there are no earnings on it to tax and the amount converted is less than what was originally contributed.

[MaryK4 · Accepted solution]

Because you claimed the deduction in 2020 and 2021, it would be taxable.  If you amended your returns to remove the deduction, you would enter them in 2022 as nondeductible contributions and it would be tax free.  (If as you indicated you were not qualified for the deduction, you should amend your returns ASAP before the IRS contacts you about it...)