Need help understanding why my wife's backdoor IRA conversion is triggering $1.5k in taxes owed on her traditional IRA.
Situation
- My wife had been contributing to a traditional IRA dating back a number of years, prior to us getting married. Most if not all contributions would have been tax deductible (I think) due to her income being low and no retirement investment accounts from an employer (don't have exact details but can try to get them if needed).
- Her last contribution was in Feb 2023 in the amount of $6,500, the annual limit for that year.
- There was a merging of IRA accounts between TDAmeritrade and Charles Schwab which resulted in money being transferred in 2023 from the TDA account to the CS one. This was all automatically done by those brokerages.
- I have been doing backdoor Roth conversions for a number of years now. I have a total of $7 in my traditional - it's purely to facilitate the conversion --> not sure if my situation is relevant, including it just in case.
- We got married in Aug 2023 and filed jointly for that year. I only have Form 8606 in our 2023 tax return under my name, presumably because I did a backdoor Roth conversion whereas my wife did not (and therefore had no nondeductible contributions).
- We both contributed $7k each into our Traditional IRAs in 2024 and triggered backdoor Roth conversions for the full amount (so my wife's first time doing this).
- I followed the instructions on this help page for how to correctly enter these: https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/enter-backdoor-roth-...
- When I first put my IRA details in, there is no change to the overall taxes owed/returned.
- When I put my wife's in, there's a ~$1.5k deficit added to the overall tax number. This is due to two things: 1. answering no to the question on whether she has "made and tracked non deductible contributions from 2023 and prior years", and 2. adding the traditional IRA account's basis for EOY 2024 as ~$10k.
I don't understand why this would have triggered any taxes owed. Everything she contributed in 2024 was fully converted to a Roth. I can't reconcile why having historical funds in the traditional IRA would now be triggering taxes owed.
What am I misunderstanding? Also please lmk if there's any additional detail needed to understand the situation.
