Being taxed on post-tax contribution to Roth IRA

[nbhardwaj]

Hi,

In March 2024, by mistake, I contributed $6500 from my bank account (post-tax money) to my Roth IRA. That money was $6713 in Nov 2024, which I moved to my brokerage account. I got a 1099-R indicating $213 as taxable income, on which TurboTax calculated a federal tax of $21. This was my first year of making this mistake and moving the money out from the Roth account. I am also planning to make a contribution of $7000 for backdoor Roth conversion for 2024. Now when I'm doing my New Jersey taxes, this is how I answered the following questions under "IRA Information"
1. Tell us if this was the first withdrawal from this IRA? Yes

2. total of all IRA previously taxed: $6500

3. Value of all IRS on 12/31/2024: $42,068 (the value of my traditional IRA on Dec 31 2024)

4. IRA Contributions made for 2024 between 1/1/2025 and 4/15/2025: 7000

But in the next screen, it lists an amount of $5932 for New Jersey taxable pension. I believe TurboTax is taxing me on the $6500 and not $213. In the forms at least $5932 as taxable pension and $781 as excluded pension (sum is $6713). Can anyone pls tell me how do I make $213 as my taxable income (and not 6500) from this entire contribution? Do I need to change anything manually?

Moreover, increasing the amount in all IRA (traditional IRA) also increases the NJ taxes which it should not.

Thank you so much!

[nbhardwaj]

Hi, would anybody be able to help with the above issue? Basically, when I put $6500 as post-tax contribution, TurboTax still lists a chunk of that as taxable pension. So it's taxing me on the $6713 instead of the gains of $213. 
Thanks so much in advance.

[fanfare]

1. Tell us if this was the first withdrawal from this IRA? Yes

2. total of all IRA previously taxed: $6500

3. Value of all IRS on 12/31/2024: $42,068 (the value of my traditional IRA on Dec 31 2024)

4. IRA Contributions made for 2024 between 1/1/2025 and 4/15/2025: 7000

These question do not apply to a Roth IRA.

I don't know why TurboTax is asking those questions.

you need to circumvent or defeat these questions, perhaps by entering -0-.

The NJ taxable amount is the same as the Federal taxable amount

@nbhardwaj 

[fanfare]

Did you mark the IRA/SEP/SIMPLE box?

That would be wrong for a Roth distribution.

@nbhardwaj 

[nbhardwaj]

Thanks, @fanfare 
But I can't help with these questions coming up: they come up right after the previous screen where TurboTax lists my post-tax contribution of $6500 to my Roth IRA (because I uploaded from 1099-R). So I have to say yes that this was the first time withdrawing. Also, for the 2nd question, if I put $0 in my post-Tax contribution instead of $6500, the taxes go even higher because then it lists the full $6713 as taxable pension on the next screen. And no, I did not check anywhere with SEPA/simple.

I need help in TurboTax not listing the $6500 (or a large part of it) as my taxable pension. How can I stop it from doing that or manually override it? Thank you so much

[fanfare]

because I uploaded from 1099-R)."

your 1099 shows a distribution, not a contribution

If you remove contribution plus earnings" It is as if that contribution never happened, except for the allocable earnings, if any.

therefore your contribution was -0- not  $7000, your distribution is $7,000 but that is a bookkeeping record reuqired by IRS.

Make your distribution 213 and taxable amount 213  and you should get that amount on 1040 Line 4b alone.

Answer to Q4 should definitely be zero by your original post first sentence.

=====

If you can't make it work, you can override and you will have to mail in your NJ tax return.

TurboTax Online does not allow override; you didn't say which version you are using.

@nbhardwaj 

[fanfare]

"4. IRA Contributions made for 2024 between 1/1/2025 and 4/15/2025: 7000"

This can be true if that's what you are doing in 2025 before April 15th,

However it should not be relevant because these questions don't apply to a Roth IRA

@nbhardwaj 

[nbhardwaj]

Hi @fanfare , I found out more and it gets interesting. Apparently, for the distribution code of 8J in 1099-R (Return of Excess Contribution) which is what I have, NJ incorrectly taxes the full contribution and not just the earning. So the question becomes how can I circumvent this excess tax? How can I override the taxable amount from the full $6713 to $213?

Or should I file my NJ taxes off-line? Is there a way to download the current NJ forms and edit them manually and then mail them?

Also, yes, I'm planning to contribute $7000 to traditional IRA (for backdoor Roth conversion) for both me and my wife each for 2024 before April 15, 2025 and that's why the answer in line 4 is 14,000.

I'm using the latest version of TurboTax in the browser which I believe is 2024. I am below 59 1/2.

Thanks for all your help.

[fanfare]

you can file online at the  https://www.njportal.com/Taxation/NJ1040/

This can be tedious.

make sure your "tax" amount is correct after making the change to Line 20a.

An override in TurboTax will give you all the new amounts.

OTHERWISE,

you can print NJ return with overrides, and send it via US Mail.

@nbhardwaj 

[fanfare]

TurboTa Online does not allow overrides.

@nbhardwaj 

[fanfare]

As I said previosly, after e-Fliing 1040 alone,

reenter 1099-R to make your distribution 213 and taxable amount 213  and you should get that amount on NJ-1040 Line 20a .

@nbhardwaj 

[nbhardwaj]

Hi @fanfare , thanks for all the advice. I'm doing this for the first time so apologies for naive questions.

If I file my 1040 for federal and then I re-enter 1099-R, how can I make my distribution 213? Can you tell me what should I change in what box exactly? Identity amount in line 20a should be 213 and 20b should be 0, correct? Also would a desktop version of TurboTax allow me to override? Since the online one doesn't, is there any way to override or is it even recommended? Very grateful for your help.

[fanfare]

the distribution is in Box 1

You can do this before you e-File the Federal 1040, but the 1040  distribution line 4a will be wrong.

IRS would not really care about that. It doesn't change your tax.

If you're OK with that, you can then e-File both Fed and State at once and be done.

 NJ 20b should be zero. If TurboTax did not ask the irrelevant quesitons, it would be.

@nbhardwaj 

[fanfare]

Maybe you are entering something wrong.

You can ask TurboTax Support for help and maybe they can find the error of your ways.

@nbhardwaj 

[nbhardwaj]

thanks @fanfare  for all your help. Hopefully the last 2 clear questions on this post.
1. Is it better to file my federal and other state taxes through TurboTax, but I download NJ forms PDF through TurboTax and edit them manually to the following changes and then send it off in mail? That way, all the numbers match for at least federal and two other states with my 1099-R.

2. In NJ 1040, I put line 20a (Taxable Pensions, Annuities, and IRA Withdrawals)  as $213, 20b (Excludable Pensions, Annuities, and IRA Withdrawals) as $6500 (my initial deposit, it doesn't count towards my Total income) and I recalculate my total taxable income using the instructions on NJ 1040 which I have figured out with the current TurboTax PDF and then recalculate the total tax with the new income which again I have figured out and matched with the current TurboTax numbers.
Is that ok to do? Thanks!