Roth IRA conversion not taxable?

[reriksoussi]

I converted a small amount of my fully deductible IRA to my Roth IRA and after complete and accurate tax-form reporting to Turbo Tax I'm being told additional tax is not due. Under what circumstances would this type of conversion NOT be taxable? I hope I truly qualify for an exemption but I am skeptical.

[MinhT]

A conversion to a Roth IRA results in taxation of any untaxed amounts in the traditional IRA.

If all your contributions to your traditional IRA were deductible, then the conversion to a Roth IRA will result in taxation of the amount converted.

Please review your entries in TurboTax and make sure that you answer correctly all the questions,

[rlp2451]

I am discovering the same thing.  Under the Line 7 Distribution Code, after you enter the code number (7), TTax asks if the IRA/SEP/Simple box is checked.  When you put an "X" in the box (as it shows on the 1099-B), TTax re-calculates the taxes due and shows it as non-taxable.

[dmertz]

This indicates that you have not yet completed all of the necessary steps in TurboTax for TurboTax to be able to properly complete Form 8606 to calculate the taxable amount.  Be sure to click the Continue button on the Your 1099-R Entries page and enter your year-end balance in traditional IRAs.

[reriksoussi]

TurboTax, do you hear us?

[rlp2451]

The last answer from dmertz was correct.  Once you complete entering the data for the 1099, you need to continue on (do not exit the screen) and TTax will ask additional questions, among them the total value of all your IRAs at year end. Once you complete those steps, the correct calculatioin for the tax appears.

[reriksoussi]

Apparently you didn't read my whole answer. I know what a 1099-R, 8606 and 5498 are. I worked as a Retirement Specialist for a four trillion dollar mutual fund company. I did complete and accurate reporting. TurboTax's software is simply inferior. I took my business to Taxact who correctly identified the taxable amount of my conversion so I filed through them. TurboTax's representatives are unknowledgeable in the subject of personal income taxes. I originally presented this question to a phone rep who had no idea, put me on hold for 20 minutes, then disconnected the call. Thanks for nothing TurboTax!

[dmertz]

The "additional tax" TurboTax is referring to is the excise tax for the otherwise early distribution from the traditional IRA.  Since you converted the entire amount to a Roth IRA, there is no early-distribution penalty.

You should see the entire amount of the conversion included on Form 1040 line 15b or Form 1040A line 11b.

[reriksoussi]

No penalty, but income tax due. TurboTax says tax doesn't apply. I believe they are mistaken.

[dmertz]

Your Roth conversion is fully taxable unless you have basis in nondeductible traditional IRA contributions.  Your deductible traditional IRA contribution created no such basis.  The income that is reportable as a result of the Roth conversion is offset by the deduction you receive for the traditional IRA contribution.

[reriksoussi]

What? I never made a Traditional IRA contribution for which to offset my conversion. You're way off here.