You may not really have a penalty. Please check that you entered the data for the traditional IRA to Roth IRA conversion in the Wages & Income portion of Turbo Tax and not under the Deductions & Credits section. I, too. experienced such a penalty when I enter my traditional IRA to Roth conversion under both the Wages & Income section and under the Deductions & Credits section. Removing the data from the Deductions & Credits solved the problem and resulted in a proper conclusion with no penalty.