Converting a traditional ira to roth ira (backdoor roth) is causing a tax liability. How do I correct this?

[pixelrogue]

Related question:

Traditional IRA and Roth IRA
Select the kind of IRA(s$ (me) and (wife) owns or will contribute to for 2018. If you own and contribute to both a traditional IRA and a Roth IRA, check both here, and we'll work on the traditional first.

So, we have checked both Traditional and Roth here for both of us and maybe this is where the erroneous tax trigger for the traditional distribution is originating?

[pixelrogue]

Personal > Deductions& Credits > Retirement and Investments

Traditional and Roth IRA Contributions are showing raw distribution from Traditional IRA as tax liability, not properly showing as conversion.

[macuser_22]

This is getting confusing as I said the procedure here is out of date and 2 years old.

any 2018 contributions must be entered in  the contribution section and not inclided in "- Basis - entered (full amount) (me) *.

I suggest deleting everything and re-enter using the current procedure.

If you have further questions pleas start a new question in your own  thread.


This so-called “back-door Roth”  method ONLY works if you have NO OTHER Traditional IRA accounts.  If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself.  Only if you started with NO Traditional, SEP & SIMPLE IRA and ended up with a zero amount in ALL Traditional, SEP & SIMPLE IRA accounts will this Roth conversion not be taxable.

First you must enter your Traditional IRA contributions (if there were 2018 contributions).

IRA contribution
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),,
Retirement & Investments,
Traditional & Roth IRA contribution.

Be SURE to answer the follow up that the are choosing to make this contribution NON-DEDUCTIBLE - if that screen comes up. (DO NOT say that you moved (recharacterized) the money to a Roth) – this is a conversion, not a recharactorazition.

Then enter the 1099-R that shows the distribution.

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),,
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

 Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved.  Choose you converted it to  Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2018.     (Usually zero unless you also made a 2017 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2018 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2016, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions.  You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.

Also see this TurboTax FAQ:
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion">https://ttl...>

[williasp]

TT EZstep does not handle properly. Tried several times. Entered t-IRA contribution (non-deductible), then 1099R (type 2) dist'n, indicated converted to Roth, indicated year end basis of t-IRA zero. Had to manually correct forms. Same issue last year and still not corrected.

[scott18]

Hello,

Thank for this info. I'm preparing my 2020 Federal Tax return using Turbo Tax Premier. I contributed to a traditional IRA and then immediately converted it to a Roth in 2020. I received a 1099-R for this for 2020. After I follow the instruction in this post to both enter the 1099-R in the income section AND I entered the information as a non-deductible traditional IRA contribution on the deduction side of Turbo Tax.  I have no traditional IRA's with any balances. Turbo Tax is saying that my IRA contribution is not permitted because my contribution is more than my earned income which is $0. But I own an S Corp (real estate sales brokerage) that certainly has income and profit and was reported on schedule 1 from the corporations K-1. Turbo Tax says this regarding additional info on this subject. 

What counts as earned income?

Earned income includes:
- The amount in box 1 of your W-2s
- Commissions
- Self-employment income
- Taxable alimony payments you receive
- Nontaxable combat pay (look on your W-2 in box 12 with a code of Q)

My K-1 income from my corporation is 100% self employment and/or commission income. So how can my earned income be $0 per Turbo Tax?

I must be doing something wrong. HELP...

[macuser_22]

You are adding onto a post from 2017

I do not know much about S-Corps.  But I believe that a S Corp K1 reports a shareholders share of income that is not compensation for IRA purposes.  Self-employed income for IRA purposes must be reported on your 1040 Schedule 1 line 3 (schedule C).

I you are also an employee of the S corp then the S Corp. would issue you a W-2 just like any employee would receive.

[scott18]

Yes, I pay myself a w-2 salary but I defer all of that salary into a 401k thus showing $0 in box 1 on the w-2. 

[macuser_22]

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@scott18 wrote:

Yes, I pay myself a w-2 salary but I defer all of that salary into a 401k thus showing $0 in box 1 on the w-2. 

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Then you have no "taxable compensation" for IRA contributions purposes.  You have already used it for another retirement plan.