TurboTax makes Traditional IRA Tax Deferred Income Taxable for 2023

[PT3088]

I contributed $7500 to my Traditional IRA in 2023 as non deductible contribution. The money sit in a money market fund for a few months and earned $8 interest. I then converted the $7500 to Roth IRA later in 2023 and left the $8 in the Traditional IRA. My brokerage firm's year end report shows the $8 as tax deferred income. But when I file my return using Turbo Tax Deluxe, it makes the $8 still in Traditional IRA as taxable income and my non-taxable conversion to $7492 for 2023. I think Turbo Tax is wrong to make the money still in traditional IRA taxable in current year. Does anyone have the same experience? If so, how do you correct it? Thank you.

[dmertz · Accepted solution]

That's not what TurboTax is doing.  TurboTax is properly treating $8 of your $7,500 Roth contribution as being taxable, it's not treating the $8 remaining in your traditional IRA as being taxable.  $8 of your basis in nondeductible traditional IRAs remains in your traditional IRA, shown on line 14 of your Form 8606.  It would have made more sense to convert the entire $7,508 so that all $7,500 of your basis would have been applied to the conversion., leaving no money and no basis in your traditional IRAs.  Just convert everything in your traditional IRAs in 2024 so that you end up with a zero year-end value in traditional IRAs it it will all sort itself out.