TurboTax incorrectly showing penalty for my backdoor Roth IRA

[manwithnoplan]

Hello, I see that this question was asked before and marked as solved but the expert instructions to follow are different from what I am seeing (Turbotax premier).

I am a high income earner whose income is above the Roth limit. I put $8000 (50+ in age) into a Traditional IRA and moved it into a Roth IRA the following day. Have been doing this the last few years but never had this problem before.

These are the screens I see

Is this the repayment of a retirement distribution? No
Tell us how much you contributed $8000
Tell us how much you transferred $8000
Your IRA explanation statement - entered details with dates
Any excess IRA contributions before 2024? No
Any nondeductible contributions to IRA? Yes - made and tracked non-deductible contributions to IRA
IRA Basis - Amount as of Dec 31, 2023
Your income is too high to contribute (warning - seen it in prior years)
You currently have a penalty - $480 (new message not seen in prior years)

Any advice is appreciated, thank you!

[fanfare]

I'm thinking you did a recharacterization of your $8,000 into a Roth, not a conversion, - a serious error, or entered it as such.

What is the distribution code on the 1099-R for this action?

@manwithnoplan 

[manwithnoplan]

Thanks for looking at this!

It is a 2, what does that tell you?

[NCperson]

that s the correct code for a Conversion - it means that you are not subject to the 10% penalty, but it is a taxable event. 

did you answer that your TRAD IRA basis on 12/31/23 and 12/31/24 was zero? 

there is a question that asks what did you do with the money? answer should be "moved it to another retirement account", then the next drop down should be "did a combination of rollover, converting, or cashing out the money'.

the next drop down answers how much was converted to a Roth IRA. (answer for you $8000 to Roth))

is that what you did?

[manwithnoplan]

@NCperson 

My TRAD IRA basis on 12/31/23 was a positive number because I have been making traditional IRA contributions and recharacterizing (in the same year) to Roth the last few years. 

Regarding your second question, I think I have seen it in previous years but I did not get those this year. These are the questions I get this year

Is this the repayment of a retirement distribution? No
Tell us how much you contributed $8000
Tell us how much you transferred $8000
Your IRA explanation statement - entered details with dates
Any excess IRA contributions before 2024? No
Any nondeductible contributions to IRA? Yes - made and tracked non-deductible contributions to IRA
IRA Basis - Amount as of Dec 31, 2023
Your income is too high to contribute (warning - seen it in prior years)
You currently have a penalty - $480 (new message not seen in prior years)

Thank you!

[AnnetteB6]

The questions that you are showing are in the section where you enter your non-deductible Traditional IRA contribution.  The second question regarding an amount that was 'transferred' should be zero.  This is not where you indicate that the money was converted to a Roth IRA.  That will be done when you enter the Form 1099-R that reports the distribution from the Traditional IRA.

Try going through the steps outlined in the TurboTax help article below to report your backdoor Roth IRA conversion.  This should clear up the penalty that you are seeing.  

How do I enter a backdoor Roth IRA conversion?
 

@manwithnoplan 

[fanfare]

" I have been making traditional IRA contributions and recharacterizing (in the same year) to Roth the last few years. "

This is exactly as I surmised in my original reply above.

Recharacterization  is not a backdoor Roth contribution and will generate a penalty for excess contribution when contribution is disallowed.

@manwithnoplan 

However , Code 2 is not a recharacterization ; you are not entering correctly into TurboTax.