Backdoor ROTH Conversion - Erroneous Tax Liability

[OaklandWoodTax]

My wife and I each made deductible contributions to Traditional IRAs in late 2019, then again in early 2020.

We entered the non-deductible contributions via TurboTax online as part of our 2019 filing.

Similarly, we've entered the non-deductible 2020 contributions as part of our 2020 filing.

When following the instructions I've found online and in this Online Community, we're seeing $859 unfavorable impact to our federal tax liability after completing the 1099-R entries to record the distributions and conversions.  TurboTax does recognize the cost basis as of Dec 31 2019 resulting from our 2019 non-deductible contributions.  Not sure what's causing the unfavorable tax impact!

[macuser_22]

The 2019 non-deductible contribution  if reported properly in 2019 would have generated a 8606 form as part of your 2019 tax return.  

When entering 2020 1099-R and the question about non-deductible contribution is answered YES, then the past years basis from line 14 of the last filed 8606 is entered (any 2020 non-deductible basis entered into the 2020 contribution  interview  will automatically be applied.

The 2020 basis will go on a new 8606 form line 1 and the 2019 (or prior) form line 14 for the last 8606 filed, will go on the new 8606 line 2,  Total of both will be on line 3.

Enter a 1099-R here:

Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

You will be asked of you had and tracked non-deductible contributions - say yes. The enter the amount from the last filed 8606 form line 14 if it did not transfer. Then enter the total value of any Traditional, SEP and SIMPLE IRA accounts that existed on December 31, 2020.

That will produce a new 8606 form with the taxable amount calculated on lines 6-15 and the remaining carry-forward basis on line 14.

NOTE: If there is an * next to line 15 then 6-15 will be blank and the calculations will be on the "Taxable IRA Distributions worksheet instead.

[OaklandWoodTax]

Thanks for your response.

I do see form 8606 was properly completed and included in my 2019 return.  It properly records the full contributions my wife and I separately made to our own Traditional IRAs.

Maybe the issue is with the 2020 non-deductible contributions?  I deleted the 1099-R's, and then entered the 2020 contributions before entering the 1099-R distributions / conversion, but still am generating a tax liability.

[macuser_22]

Did you enter the 2020 contribution in the IRA contribution interview and mark it non-deductible (if that question  comes up - it will not if your MAGI is too high to deduct).

If entered properly the 2020 contribution  will be on a new 2020 8606 form line 1.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR  Use the "Tools" menu  (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.