backdoor roth IRA tax due

[2Double]

Hi, I was getting a tax refund before adding the backdoor roth IRA information. After entering that info, I am due to pay tax. Is it correct? I used my post-tax money for IRA and then converting the entire thing to roth IRA. Why am I due for tax? Thank you so much 

[DanaB27 · Accepted solution]

No, if your traditional/SEP/SIMPLE IRAs were empty before you started the backdoor Roth and made only after-tax contributions then only the earnings would be taxable in the conversion.

Please review these steps below to enter a backdoor Roth correctly.

To enter the nondeductible contribution to the traditional IRA:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had nondeductible contributions before this tax year
10. If you had a basis in the Traditional IRA before then enter the amount.
11. 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 1099-R distribution/conversion: 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?"
12. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

If entered correctly then line 4b on Form 1040 would be $0 unless you had earnings before the conversion. Then you will see the earnings on line 4b and they will be taxable.

[2Double]

Thank you so much. I put 5999 in IRA traditional and then converted the entire thing to roth IRA but I notice that the broker has held 599 as Fed income tax and I received 2 1099-R form (one for 5399 without fed tax withheld and the other 599 with 599 tax withheld). These 2 have different distribution codes (2 for the first and 1 for the second). I am confused. Why the broker has kept money for tax and why I am due? It's triple tax.Please help

[DanaB27]

I'm not sure why your broker withheld taxes but since you had a basis of $5,999 it should not be taxable. Please check Form 8606 line 1 and 5, you should have your basis of $5,999. Line 14 should have $1 to carry over to next year.

On line 4b of Form 1040 you should have $0 as taxable. Ant your withheld tax should be included on line 25b of Form 1040.

If not then you might want to review your entries.

To verify, your traditional IRA was empty before you made the nondeductible contribution and was empty after the conversion, correct?

If you are still having issues 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 Download: 

1. On your menu bar at the very top, click "Online"
2. Select "Send Tax File to Agent"
3. Click "Send"
4. The pop-up will have a token number
5. Reply to this thread with your Token number. 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.

[2Double]

yes, traditional IRA was empty before.

Everything is as you are saying but the line 14 says 0. I entered the amount I contributed as 5999. I think 14 cents are interest in the short time. Should I have entered 5999.14?

Do I need to contact my broker for the tax that they withheld or my refund reflects that?

Thank you a ton!

[2Double]

Sorry, the interest was 4 cents

[DanaB27]

No, your contribution entry is fine.

You had stated $5,399 and $599 for the 1099-Rs, which when you add them together makes a distribution of $5,998. But it seems one of them got rounded up? And that’s why line 14 of Form 8606 is $0.

No, you do not need to contact your broker you will get a refund on your tax return since the federal taxes withheld are listed on line 25b of Form 1040. If you plan to do this again in 2022 then make sure they do not withhold taxes again on the conversion.