topic Re: 2024 Backdoor Roth Conversion impacting fed+state refunds in Retirement tax questions

2024 Backdoor Roth Conversion impacting fed+state refunds

morph23 — Thu, 16 Jan 2025 16:05:30 GMT

I'm putting in backdoor Roth conversions for the 2024 tax year using 1099-Rs I've received. I've done this in previous years without impacting refund amounts. This year, I can't figure out what I'm doing wrong -- I've followed the help article "How do I enter a backdoor Roth IRA conversion?" step-by-step.

Two 1099-Rs, one for me and one for my wife.

- $7000 contributed to Traditional IRA for each ($14000 total)

- Both converted fully to Roth IRAs with $0 basis and $0 in Traditional at year-end, marked as non-deductible

- $14 taxable (Total converted was $14014 due to interest in Traditional accounts prior to conversion)

When all is said and done (first inputting in Deductions where I selected Traditional for both my wife and me, and then inputting into Income for the conversions. I've tried it in the other order as well), the Federal refund decreases by $6 and the state (NJ) refund decreases by $1258. Note in the Deductions flow I've only checked Traditional as this is what is mentioned in the help article, though I've also tried by checking Roth in addition where I then answer that there are $0 in Roth contributions, which has the same end result.

As the contributions were made with taxed money and are non-deductible, with $0 basis, I'm not sure why there is any impact at all for either refund.

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

fanfare — Thu, 16 Jan 2025 07:13:23 GMT

"I've done this in previous years without impacting refund amounts."

A backdoor contribution is done by converting aTrad IRA contribution to a Roth IRA

Step 1 enter the Trad IRA amount of $7,000 and make sure you have elected "Non-deductible".

" and then inputting into Income for the distributions. "

There is no income if you do a conversion of non-deductible basis in a Traditional IRA to a Roth IRA

Since you converted an extra $14, the Form(s) 8606 should result in a taxable amount of $14.

@morph23

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

morph23 — Thu, 16 Jan 2025 15:35:05 GMT

@fanfare

Here's the TurboTax help article for entering a Backdoor Roth Conversion.

It needs to be entered in both Wages & Income in Pension Plan Withdrawals (1099-R) for the conversion, and in Deductions for the non-deductible contribution.

And correct, only $14 should be taxable. When I look at the 1040 Preview per the instructions in the article (to double check), the Line 4a values are correct (showing just $14 taxable), as well as Schedule 1 Line 20, but for some reason it is still impacting both refunds.

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

fanfare — Thu, 16 Jan 2025 16:25:47 GMT

" as well as Schedule 1 Line 20, "

what is the amount shown on this line?

@morph23

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

morph23 — Thu, 16 Jan 2025 16:29:36 GMT

@fanfare It was blank, matching expectations from the help article.

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

fanfare — Thu, 16 Jan 2025 16:37:07 GMT

Evidently you have entered the information correctly.

If your "refund/amount you owe" is unexpected, it is due to other unrelated entries on your tax return.

---
Always print a copy of your completed tax return for your records, and review it carefully before e-Filing.
You will need it if you are audited by the IRS, to contact the IRS, or to amend if a TurboTax update changes your return or for any other reason,

AND, to find your AGI next year.

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

morph23 — Thu, 16 Jan 2025 16:43:03 GMT

@fanfare Thanks, and yes it seems it is being entered correctly based on the preview, but I haven't been able to pinpoint why entering the conversion w/ 1099-Rs is impacting both refunds to such a degree (or, at all). Inputting non-deductible contribution in Deductions has no impact on the refunds, only after entered in the Income/Wages section for the conversions is when the refunds drop. Are there any obvious scenarios where this would be valid? I haven't seen this behavior in over 5 years of doing backdoor conversions.

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

fanfare — Thu, 16 Jan 2025 16:45:45 GMT

you probably have to wait for the final TurboTax updates that always come later.

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

jhlight12 — Sun, 23 Feb 2025 12:12:59 GMT

Were you able to figure this out? I am following the steps in TurboTax's linked article as well, and it appears to not be handling the backdoor Roth conversion correctly.

I contributed 7000 in 2024 to a Traditional IRA, non-deductible. I converted 7004 to Roth in the same year. I should only be taxed on $4, yet my "taxes owed" is going up by $1500 after entering my 1099-R. I don't understand where I'm going wrong despite following the online guide.

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

DanaB27 — Sun, 23 Feb 2025 15:47:12 GMT

Can you please check line 4b of Form 1040 to see the taxable amount?

To preview Form 1040 in TurboTax Online:

Click on "Tax Tools" in the left menu
Click "Tools"
Click "View Tax Summary" in the Tool Center window
Click on "Preview my 1040" on the left

To clarify, your value of all your traditional/SEP/SIMPLE IRAs at the end of 2024 was $0 ? If not then some of your basis was allocated to the funds left in the account. The backdoor Roth only works if your traditional/SEP/SIMPLE IRA didn't have any pre-tax funds.

Please review the following instructions to enter a "Backdoor IRA".

To enter the nondeductible contribution to the traditional IRA:

Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “traditional IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution?”
Enter the amount you contributed
Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
Enter your basis in the Traditional IRA from your 2023 Form 8606 line 14 (if you had a basis in the prior year)
On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the Form 1099-R conversion:

Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Click "Continue" and enter the information from your 1099-R
Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
On the "Review your 1099-R info" screen click "Continue"
Answer "Yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
Answer the questions about the basis from line 14 of your 2023 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@jhlight12

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

jhlight12 — Sun, 23 Feb 2025 17:39:40 GMT

Yep - 4b on my 1040 preview is showing 7005 as the taxable amount.

And on my 2024 basis - I can confirm the amount in my traditional IRAs was $0 after I converted the entirety of the $7000 contribution (earned $5 in interest) to a Roth IRA.

I'll go through these steps you listed here and let you know if it addresses it.

@DanaB27 wrote:
Can you please check line 4b of Form 1040 to see the taxable amount?

To preview Form 1040 in TurboTax Online:

Click on "Tax Tools" in the left menu
Click "Tools"
Click "View Tax Summary" in the Tool Center window
Click on "Preview my 1040" on the left

To clarify, your value of all your traditional/SEP/SIMPLE IRAs at the end of 2024 was $0 ? If not then some of your basis was allocated to the funds left in the account. The backdoor Roth only works if your traditional/SEP/SIMPLE IRA didn't have any pre-tax funds.

Please review the following instructions to enter a "Backdoor IRA".

To enter the nondeductible contribution to the traditional IRA:
Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “traditional IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution?”
Enter the amount you contributed
Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
Enter your basis in the Traditional IRA from your 2023 Form 8606 line 14 (if you had a basis in the prior year)
On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the Form 1099-R conversion:

Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Click "Continue" and enter the information from your 1099-R
Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
On the "Review your 1099-R info" screen click "Continue"
Answer "Yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
Answer the questions about the basis from line 14 of your 2023 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@jhlight12

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

jhlight12 — Sun, 23 Feb 2025 17:48:35 GMT

@DanaB27 - this seemed to solve the issue! I think the issue was I originally answered yes to the "recharacterized question". Was definitely not clear that this was intended to mean "at the time of contribution" and not that I converted it to a Roth later. I understand those terms are different when it comes to filing, but it tripped me up.

Thank you for spelling this out! I appreciate it.

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

kiddkevin01 — Thu, 06 Mar 2025 18:12:50 GMT

@DanaB27 wrote:
Can you please check line 4b of Form 1040 to see the taxable amount?

To preview Form 1040 in TurboTax Online:

Click on "Tax Tools" in the left menu
Click "Tools"
Click "View Tax Summary" in the Tool Center window
Click on "Preview my 1040" on the left

To clarify, your value of all your traditional/SEP/SIMPLE IRAs at the end of 2024 was $0 ? If not then some of your basis was allocated to the funds left in the account. The backdoor Roth only works if your traditional/SEP/SIMPLE IRA didn't have any pre-tax funds.

Please review the following instructions to enter a "Backdoor IRA".

To enter the nondeductible contribution to the traditional IRA:
Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “traditional IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution?”
Enter the amount you contributed
Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
Enter your basis in the Traditional IRA from your 2023 Form 8606 line 14 (if you had a basis in the prior year)
On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the Form 1099-R conversion:

Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Click "Continue" and enter the information from your 1099-R
Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
On the "Review your 1099-R info" screen click "Continue"
Answer "Yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
Answer the questions about the basis from line 14 of your 2023 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@jhlight12

After I complete "9. Enter your basis in the Traditional IRA from your 2023 Form 8606 line 14 (if you had a basis in the prior year)" as mentioned in your instruction (I entered $0 since 2023 Form 8606 line 14 is blank), it navigates me to the following screens instead of “Choose Not to Deduct IRA Contributions” screen as mentioned in the 10th bullet in your instruction:

- "Is This a Repayment of a Retirement Distribution?" and I click on "No"

- "Enter Your Roth IRA Contributions" and I enter "0."

- "Switch from a Roth To a Traditional IRA?" and I click on "No"

- "Let Us Track Your Roth IRA Basis" and I click on "No"

- "Do You Have any Excess Roth Contributions" and I click on "No"

- "Income Too High To Deduct an IRA Contribution"

But I am fairly sure even my income Too High To Deduct, I can still do a backdoor Roth IRA conversion. Can you help, @DanaB27? Thanks!

I have been contacting the Turbo tax support line but I got the answer that the backdoor roth IRA conversion for 2024 is coming soon, but it's about a month before the deadline already. Can someone help with this please?

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

DanaB27 — Fri, 07 Mar 2025 14:37:21 GMT

It seems you selected Traditional IRA and Roth IRA at the beginning of the IRA contribution interview since you are also getting Roth IRA questions. Do not enter a Roth IRA contribution unless you directly made Roth contributions for 2024. Do not enter the backdoor Roth as a Roth IRA contribution.

Yes, you can still do backdoor Roth. Please note, if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and then you do not get the screen “Choose Not to Deduct IRA Contributions”. Instead you get the "Income Too High To Deduct an IRA Contribution" warning and then a screen saying $0 is deductible. This is what you want when making a backdoor Roth, you want to have the traditional IRA contribution nondeductible.

@kiddkevin01

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

kiddkevin01 — Fri, 07 Mar 2025 18:21:41 GMT

Thanks for the reply, @DanaB27

I just tried again and selected only Traditional IRA at the beginning of the IRA contribution interview. After passing 9th bullet in your instruction (Let's Find Your IRA Basis), it navigates me to the following screens:

- Tell Us the Value of All Your Traditional IRA Accounts ($0)

- Is This a Repayment of a Retirement Distribution? (No)

- "Enter Your Roth IRA Contributions" and I enter "0."

- "Switch from a Roth To a Traditional IRA?" and I click on "No"

- "Let Us Track Your Roth IRA Basis" and I click on "No"

- "Do You Have any Excess Roth Contributions" and I click on "No"

- "Income Too High To Deduct an IRA Contribution"

And when I check the 1040 form, it's still saying $7000 is taxable in 1040 box 4b.

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

DanaB27 — Fri, 07 Mar 2025 21:23:16 GMT

To clarify, did you make the $7,000 traditional IRA contribution in 2024 for 2024 and you entered this in the IRA contribution interview? And you converted the $7,000 in 2024 and have Form 1099-R entered to show the conversion?

Did you have pre-tax funds in the traditional IRA? Was the value of all traditional/SEP/SIMPLE IRA $0 on December 31, 2024? You find the value at your end of the year statement.

If you followed all the steps and cannot figure out what is wrong it would be helpful to have a TurboTax ".tax2024" file that is experiencing this issue. You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Online:

From the left menu select Tax Tools.
Then select Tools below Tax Tools.
A window will pop up which says Tools Center.
On this screen, select Share my file with Agent.
You will see a message explaining what the diagnostic copy is. Click okay through this screen and then you will get a Token number.
Reply to this thread with your Token number and add @DanaB27 . This will allow us to open a copy of your return without seeing any personal information.

The instructions for TurboTax Download:

On your menu bar at the very top, click "Online"
Select "Send Tax File to Agent"
Click "Send"
The pop-up will have a token number
Reply to this thread with your Token number and add @DanaB27 . This will allow us to open a copy of your return without seeing any personal information.

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

@kiddkevin01

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

kiddkevin01 — Sun, 09 Mar 2025 07:25:40 GMT

> Yes and yes!

Did you have pre-tax funds in the traditional IRA? Was the value of all traditional/SEP/SIMPLE IRA $0 on December 31, 2024? You find the value at your end of the year statement.

> It's $0

The token number is: 1284881, @DanaB27. Please provide me with a resolution. Thanks!

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

DanaB27 — Sun, 09 Mar 2025 15:36:00 GMT

Thank you. I reviewed your return.

You entered a value for all your traditional/SEP/SIMPLE IRAs on December 31, 2024, that isn't $0. It seems you had pre-tax funds in your traditional/SEP/SIMPLE IRAs and therefore the the pro-rata rule applies. This means that with each distribution/ conversion you will have a taxable and nontaxable part. You can see the remaining basis on line 14 of Form 8606, this basis can be carried forward.

The Backdoor Roth only works if your traditional/SEP/SIMPLE IRAs are empty. If you plan to use this strategy in the future you might want to think about a reverse rollover where you rollover IRA money to a company plan, like a 401(k). Only pre-tax funds can be rolled from an IRA to a company plan. Therefore, you would isolate the basis and could start the Backdoor Roth procedure fresh. But it only works if your employer allows it, not all plans do.

If the value of all your traditional/SEP/SIMPLE IRAs on December 31, 2024, is indeed $0 then please go back to the retirement section to edit your entry:

Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
On the "Review your 1099-R info" screen click "Continue"
Continue till you get to the "Tell us the value of Your Traditional IRA" screen and edit the entered value.

@kiddkevin01

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

kiddkevin01 — Mon, 10 Mar 2025 05:40:57 GMT

@DanaB27 Thanks for taking a look! I entered the value of all your traditional/SEP/SIMPLE IRAs on December 31, 2024, is $0. In addition, the total basis as of Dec 31, 2023 I entered is $0 as well in the Deductions & Credits tab but it doesn't seem to propagate those informations I entered to 1040 nor 8606. I just did it again and my token number is 1285472. Can you check how I can get that fixed please? Thanks!

Re: 2024 Backdoor Roth Conversion impacting fed+state refunds

DanaB27 — Mon, 10 Mar 2025 13:24:02 GMT

Thank you, I looked at the token and it still has a value other than $0 entered on the "Tell us the value of Your Traditional IRA" screen in the retirement section, therefore, TurboTax is still using the pro-rata rule and only part of the conversion is nontaxable.

I see you entered the value $0 in the IRA contribution section but this screen is different from the one in the retirement section. Please review your entry in the retirement section:

Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
On the "Review your 1099-R info" screen click "Continue"
Continue till you get to the "Tell us the value of Your Traditional IRA" screen and edit the entered value.

@kiddkevin01