TurboTax Penalizing my IRA to Roth IRA conversion. Why?

What is the code in box 7 of the 1099-R you received?

First code = 7
Second code = blank
IRA/SEP/SIMPLE box = checked

I should add that line B4 shows $44,000 and line B6 shows $39,160

The code 7 indicates that you were of retirement age at the time of the withdrawal transaction. Therefor no early withdrawal penalties would be assessed.
On an IRA the custodian is not required to withhold taxes (not one penny) unless you specifically requested it with something like a W-4 you may have filled out at some time in the past for this account.
The $4,840 was not converted, since it was sent to the IRS and state, and that amount "is" taxable income on your 2018 return. So unless you personally made up the difference with money out of your pocket, you have a $39.160 conversion that "is" taxable income, and the $4,840 paid to the state and IRS is also taxable income.
So the entire $44K is taxable income on your 2018 tax return, and take note that will increase your AGI for the tax year, potentially putting you into a higher tax bracket.
Now, based on my experience, correcting an already entered 1099-R doesn't work for whatever reason. It just makes things worse. So you need to delete the 1099-R. Work through the 1099-R section and after you delete it, continue working it through until you get to a screen with a DONE button on it. Your deletion doesn't "stick" until you click that DONE button.
Now re-enter the 1099-R anew making sure you enter it perfect the first time. Then it's vitally important you pay attention to the screens that will follow the 1099-R data entry screen so that you make the correct selections.
As a reminder (mainly for others reading this) a ROTH IRA is funded with "AFTER" tax money. So when you convert a Traditional IRA to a ROTH IRA, every penny of the converted amount is taxable income in the tax year the conversion takes place.

Carl, thanks for that! I'm 62, not retired, and I fully expected to pay tax on the conversion amount ($44,000). But TurboTax is telling me that the IRS will assess a 6% -penalty- PER YEAR (penalty, not tax) on the Roth deposit over $6,500. It's called an "excess contribution penalty." How can I tell TurboTax / IRS that this isn't an "excess contribution" but rather a "IRA to Roth conversion?"  

I had the same issue. I complained about this to TTX, and was basically blown off and ignored. I've since "heard" they fixed it, but apparently not I guess. To "fix" it so I could e-file, I left the simple/SEP box unchecked, and that did it.

did you click Update ? the update report say this was fixed.

Please make sure you only entered the information in the 1099-R income section and not in the contribution section (Deduction & Credits). 

Please be aware that a conversion from Traditional to Roth IRA will result in the taxable income unless you had non-deductible contributions in the trad. IRA.

To enter the 1099-R distribution/conversion: 

1. Click "Personal Income" on the top
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “did a combination of rolling over, converting or cashing out.”
10. Enter "$39,160" in "Amount converted to Roth IRA account"

Which version of TurboTax to purchase (Deluxe, Premier, etc).

I have Traditional 401k converted into Roth 401k and also few stocks purchase and sold.

Please guide.

If you are using online software, you may start in the Free version if you wish.  That way, if your situation requires a paid version of TurboTax, you will be prompted and then can be upgraded to the proper version of the program. 

If using desktop software, any version Deluxe and above is capable of handling all personal tax return situations.  However, Premier and Home and Business provide advantages for those who are involved with stock trades or have their own business.

I am having the same issue.  I converted $45,000 from a Traditional IRA to a Roth IRA.  I expected to pay the taxes, but Turbo Tax is telling me that I owe 6% on the excess over the annual contribution limit of $6,000, which is $39,000, thus the penalty I have to pay is $2,340.  This is not a contribution, but rather a conversion.  Why does Turbo Tax continue to say I owe the penalty?  I don't want to file my taxes until this is corrected.  What can I do?   Please help!!

@richbiel23  You have entered your conversion incorrectly, and the program is calculating out the contribution as if it were a direct (and mostly disallowed) contribution rather than a completely allowed conversion.  Follow the instructions in this link:  Roth IRA Conversion instructions

for the problem when TT shows Penalty for Tradition IRA to Roth IRA conversion, explanation is provided to only enter information to the INCOME side and nothing is to be entered into the DEDUCTION side. However, the problem is created by entering information on the DEDUCTION side and no guidance is provided how to remove the wrongly entered information. I have since found out how to remove the information from the DEDUCTION side. The steps are to down to the RETIREMENT AND INVESTMENTS / Traditional & Roth IRA Contributions, press UPDATE, on the new screen remove check marks from boxes for Traditional IRA and from Roth IRA, and then check the box for None of the above; then click Continue.

I am confused.

There is a guidance I found to enter the IRA conversion to Roth by going to "Deduction and Income" Tab.

And here saying I guess using "Retirement and Social Security" make more sense but I want to make sure. I am converting $35,000 from IRA to Roth this year 2023 and using TurboTax Deluxe as last 10+ yrs. Please help which Tab is correct? And the guidance from Daniel on top is good?

@hung05   You need to have a 1099R for a conversion.   If you don't have  it ask the plan for another copy.  Or maybe you can log into your IRA account and download it.

The easiest way to get to the 1099-R entry screen is to simply search for 1099-R (upper- or lower-case, with or without the dash) in your TurboTax program and then click the "Jump to" link in the search results.

Enter a 1099R under

Federal Taxes Tab or Personal (Home & Business)

Wages & Income at the top

Then scroll way down to Retirement Plans and Social Security,

Then IRA, 401(k), Pension Plans (1099R) - click Start or Revisit

There are 4 boxes.  Be sure to pick the right box for the kind of 1099R you got.

If you are filing a Joint return be sure to pick which person it is for.

Don't enter the bank or broker name and don't try to import it.  It is just as fast and easy to manually enter it.  At the bottom pick -  Change How I enter my Form

Then on the next screen pick I'll Type it in Myself

@VolvoGirl

Thank you very much for clarification.

@VolvoGirl or Anyone help

I am looking at my 2023 TurboTax deluxe the 4 options under Tell Us Which 1099-R You Have don't have option for Conversion IRA to Roth. The only option is close to my situation is Form 1099-R withdraw of money from 401k retirement plans, pension, IRA, etc. Do this option including IRA to Roth Conversion? 

Many thanks.

Yes it's the first one.  It's just a regular 1099R, not any of the other 3.  

I hope this helps somebody save the 2 or 3 hours it cost me to understand.

If you have an IRA to Roth IRA conversion, enter the details in Wages & Income->Retirement Plans and Social Security and DO NOT enter your retirement details in Deductions & Credits->Retirement and Investments. I know it is confusing, but it works. If you enter data into the Deductions & Credits section you will get the excess contribution fine!