Backdoor Roth Showing as Taxable

[whyesy]

I am using 2025 Intuit TurboTax for Home & Business desktop version.  I received two 1099-R forms (mine & wife's) for the exact same amounts ... $6,600.  When I enter the 1099s it shows as taxable on Form 1090 lines 4a and 4b creating a taxable amount.  

Here is the token number:  123145765883634-44455342

I followed the instructions from multiple threads; however, nothing I am doing is changing it from taxable to non-taxable.  Any help is appreciated.

[baldietax]

you mentioned 1099Rs but did you go through the IRA section and enter the non-deductible contributions?

are you able to see your Form 8606 to see what is happening with the tax calculation?

[whyesy]

Yes, I can see the 8606; however, there are definitely issues with it. 

Here is the sequence of questions Turbotax leads me through:

1. Is this a repayment?  No

2. Amount of contributions you put into a traditional IRA in 2025? $6,600

3. Amount switched from traditional IRA to Roth IRA?  $6,600

4. Enter recharacterization information: 

Original Date of Contribution ... done throughout year so no way to enter one date

Recharacterization Date ... same as above

Recharacterization Reason ... convert to Roth

Amount Transferred ... $6,600

5. Did you contribute more than allowed for 2024 or prior?  No

6. Did you have any NON-decutible contributions to your traditional IRA from 2024 or prior?  No

There is no place to put any non-deductible data for 2025.  I think that is the problem unless I am missing something.

I have deleted everything and started again but nowhere does it allow for 2025 non-deductible information.

Also, on the Form 1040, line 4b it lists all the contribution as taxable and 4c does not have a "Rollover" checked.  

I hope this gives you some insight into what I am doing wrong ... or the software is doing wrong.  Driving me crazy!!

[baldietax]

so I don't know Home & Business but I think the question responses here are reflecting a recharacterization of Trad to Roth IRA contributions, which is different to a Roth conversion, so these answers are probably taking you down the wrong path.

The identification of the IRA distribution as a Roth conversion should come in the questions after the 1099-R.

[whyesy]

As a follow-up, here is a snapshot of Form 8606 showing the impact.  The calculation of the 2025 conversion ($6,600) as a % of the total IRA value is creating the issue.  How do I correct this so the impact is 0?

[baldietax]

uh oh this may ruin your Friday night but unfortunately that looks correct to me - if you have a pre-tax IRA balance, the Roth conversion is only non-taxable based on the ratio of your basis (the contribution) to the total IRA balance.  So for 2025 your $6600 contribution is only $29 tax free, $6571 is taxable this year (i.e. this is coming from your pre-tax IRA money), and the remaining $6571 from your contribution is carried forward as basis for the lifetime of the IRA.  Every distribution/conversion you do will kick out a portion of that basis as non-taxable for the life of the IRA balance.

I am not sure all the rules about reversing this, but tagging the resident experts...

@dmertz @mesquitebean @VolvoGirl @Mike9241 @DoninGA 

[dmertz]

As baldietax said, as it stands, your traditional IRAs will always have some basis in nondeductible traditional IRA contributions until the balance in all of your traditional IRAs is zero.

People in this situation often consider obtaining a return of the nondeductible contribution so that they don't have to track basis forever, or they roll the pre-tax portion of their IRAs into an employer plan like a 401(k), leaving just the basis in the traditional IRAs.

[Mike9241]

Unfortunately, the option to recharacterize (or "undo") Roth IRA conversions was eliminated by the Tax Cuts and Jobs Act starting in 2018.

Considering the value of your traditional IRAs, backdoor Roths will continue to create taxable income.

but form a positive prospective you may be paying lower taxes now than you would if you put the money into  an IRA and let it grow there. 

future options to avoid conversion taxes are either to make a direct Roth contribution or to an IRA for which you do not take a tax deduction. it would seem based on the IRA value a ROTH would better serve you.

When you need to start taking RMDs from the IRAs, consider Qualified Charitable Distributions (QCDs) - a direct transfer of money from the IRA to the charity. You do not and can not touch the money. That makes the QCD portion of the distribution non-taxable but you lose out on the charitble deduction.  This does have the effect of lowering AGI, which can have some beneficial tax effects. WARNING. Tax laws change like above, so if interested, inquire about the tax laws affecting QCDs in the year distributions will start.   QCDs cannot come from ROTHs