When I filled out nondeductible traditional IRA contributions (for a Backdoor Roth), why did TurboTax calculate my federal refund going significantly down?

[pher]

In 2022, I made a nondeductible contribution to my Traditional IRA and then converted that exact same amount (no growth) to my Roth IRA. I put this into TurboTax and watched as my refund immediately tanked by thousands of dollars.  I'm so confused why this happened, since the contribution shouldn't be taxable (regardless of whether it's deductible).

My Traditional IRA (I only have one) had $0 in it at the end of 2021. In the Wages & Income section, TurboTax asked, "Let us know if [name] made and kept track of any nondeductible contributions to [name]'s Traditional IRA from 2022 or prior years." I said Yes (because I was contributing in prior years, even if I always converted it all into a Roth IRA). It then asked my basis as of end of 2021, and I input $0 (because I had converted all amounts into the Roth IRA before the end of each year). For the total value of all traditional IRAs as of end of 2022., I also put $0.

Why would TurboTax calculate this as reducing my refund? The only thing I can think of: My 1099-R does include the whole contribution under "taxable amount" (line 2a) but it also has the "taxable amount not determined" checkbox checked (line 2b), and I entered that into TurboTax properly, so it shouldn't actually be using that as part of the calculation...?

Should I have not entered this into my Wages  & Income section? Or maybe I was supposed to do it there, but something will come later in Deductions?

[ThomasM125 · Accepted solution]

You need to enter a non-deductible traditional IRA contribution into TurboTax in addition to entering the Form 1099-R for the conversion to the ROTH IRA. You do this in the Deductions and Credits section of TurboTax and then Retirement Plans and Investment and then Traditional and Roth IRA contributions.

The conversion of your traditional IRA to the Roth IRA should not be taxable as you say. You can look on your Form 1040, line 4(b) to see if the distribution is showing as taxable.

You can view your form 1040 and schedules 1 to 3 while working in the online version of TurboTax by following these steps:

1. Click on Tax Tools in the left menu bar
2. Click on Tools
3. Look under Other Helpful links….
4. Choose View Tax Summary
5. Look in the left menu bar and choose Preview my 1040
6. Scroll down the page to see form 1040 and schedules 1 to 3

[port63722]

Similar situation, and when I check box 4b, part of my conversion is showing up ($4,939 all already taxed converted, and turbo tax is calling $755 taxable). I entered in $6000 in contributions to the traditional IRA (was only able to convert $4939 before the end of the year due to processing delays. Why is turbo tax not processing this correctly?

[DanaB27]

Please be aware, if you have a balance of pre-tax and after tax in your traditional IRA then the pro-rata rule applies. This means that with each distribution/ conversion you will have a taxable and nontaxable part. Check Form 8606 Part I for the calculation.

Please see How do I enter a backdoor Roth IRA conversion? for additional information.

@port63722