Confused about IRA and 1099R
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siwadon2000
Level 2

Confused about IRA and 1099R

I just upgraded to turbo tax live premium.  Spoke to Steward , great advisor.   Both of us stuck on 1099R from vanguard which mentioned that Box 2a 11,700$.   I tried to do backdoor roth and put after tax money into teaditional ira. And why My money is taxable?   Please help

15 Replies
ErnieS0
Employee Tax Expert

Confused about IRA and 1099R

Please clarify. To fully answer your question, we would need to know the tax year of your nondeductible Traditional IRA contribution and what you mean by “tried to do a backdoor Roth.”

 

Did you actually complete a backdoor conversion? Or did you change your mind and withdraw your traditional IRA contribution.

 

To make your 1099-R withdrawal non-taxable, you need a matching “basis” of non-deductible contributions.

  • Type ira contributions
  • Click Jump to ira contributions
  • Select Traditional IRA. Continue
  • Continue until you see Any Nondeductible Contributions to [Your] IRA? Select Yes.
  • Enter your non-deductible contribution as Total Basis as of December 31, 2019 if you contributed for the 2019 tax year. This will make your withdrawal non-taxable.
  • If you made a 2020 contribution, enter it as a 2020 traditional IRA contribution. TurboTax will say your income is too high for a deduction and ask whether you want to make the contribution non-deductible.

If you have TurboTax Live, you have unlimited live support from a credentialed Enrolled Agent, CPA or Tax Attorney. Click on Live Tax Advice on your screen.

siwadon2000
Level 2

Confused about IRA and 1099R

Hi, Ernie

   Thank you for your answer.   My situation is that I contributed 6000$ to Roth IRA in 2019 and was found that I was not supposed to do so because my compensation is too hight to do roth IRA.   So around March 2020, I recharacterized it to traditional IRA.   And at the end of 2020(December 2020). I contributed another 6000$ to traditional IRA and converted all money to Roth IRA.  Now no money on traditional ira.    I received two 1099R.   One is about 6000$ seems ok because it is 0$ on box2a and code on box7 is R (recharacterized )  But the other 1099R is 11700$ and box2a is 11700$ as well.  It is checked on taxable not determined. And code on box 7 is 2.    

I read on the internet.   They mentioned that I need to let my CPA know and they mentioned about form 8606 and 1040.   
Please advise

DaveF1006
Employee Tax Expert

Confused about IRA and 1099R

Actually the code 2 represents that this is a early distribution but an exception applies. The $11,700 is subject to normal taxation but you will not not be charged an additional 10% early withdrawal penalty because of the exception. 

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siwadon2000
Level 2

Confused about IRA and 1099R

I don’t understand why it’s taxable. The money that I put in it is after tax money which means I paid tax already.  This is what I found on the internet.  I feel like I am going to pay tax twice. 833A7559-C017-4B06-855F-4FAE341E7031.png.

DaveF1006
Employee Tax Expert

Confused about IRA and 1099R

Is this distribution from a Roth IRA or from another retirement plan?

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siwadon2000
Level 2

Confused about IRA and 1099R

From traditional IRA to roth IRA.   I never withdrawn money and and it is just converted from traditional ita to roth ira.  

macuser_22
Level 15

Confused about IRA and 1099R

@siwadon2000  - What you are trying to do is commonly called a "Backdoor Roth".  You probably did not properly enter the non-deductible contributions.   You must report the 2019 contribution on your 2019 tax return (or amended 2019 return if not already reported) and use the 2019 8606 form line 14 on the 2020 conversion.

 

Your 2019 recharacterization would result in a Traditional IRA contribution and if non-deducible would produce a 2019 8606 form with the carry forward basis on line 14.

===========================================================

 

The "Backdoor Roth" does not exist in tax law. It is a procedure used by some to take advantage of a quirk in tax law that allows making a non-deductible contribution to a Traditional IRA when one cannot contribute to a Roth IRA, and the immediately converting the Traditional IRA to a Roth IRA, thereby getting the money into the Roth via "backdoor" tax free.

That "procedure" can only work of all these requirements are met:
1) No Traditional IRA account whatsoever can exist (that includes any SEP or SIMPLE IRA accounts) at the start. If existing IRA's contain any before-tax money or earnings then it will be partly taxable.
2) The Tradition IRA contributions must be reported on a 8606 form as non-deductible.
3) The conversion to a ROTH must be shortly after the contribution to avoid taxable gains.
4) The entire Traditional IRA value must be zero that the end of the year of conversion.

Otherwise the conversion will be partly taxable.

First you must enter your Traditional IRA contributions (if there were 2020 contributions).

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

Be SURE to answer the follow up that the are choosing to make this contribution NON-DEDUCTIBLE - if that screen comes up. (DO NOT say that you moved (recharacterized) the money to a Roth) – this is a conversion, not a recharactorazition.

Then enter the 1099-R that shows the distribution.

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).

Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2020.     (Usually zero unless you also made a 2019 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2020 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2020, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.

Also see this TurboTax FAQ:
https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
siwadon2000
Level 2

Confused about IRA and 1099R

Thank you very much , macuser.

I think this is what my situation and will contact live specialist to help out.  Very stressful process 

macuser_22
Level 15

Confused about IRA and 1099R


@siwadon2000 wrote:

Thank you very much , macuser.

I think this is what my situation and will contact live specialist to help out.  Very stressful process 


Do you have a 2019 8606 form?

 

Perhaps you did not properly report the recharacterization and need to amend 2019 to report it. You should have have received a 2020 1099-R with a code R in box 7 for the 2019 recharacterization.

 

A 2020 1099-R with a code R in box 7 (Recharacterized IRA contribution made for 2019 and recharactorized in 2020) will tell you that you must amend 2019.

A code R 1099-R does nothing whatsoever if entered into the 1099-R section of an amended 2019 return. It does not get sent to the IRS and nothing goes on the tax return at all. The only purpose of the 1099-R is to report the recharacterization to the IRS, but it still must be reported on your 2019 tax return.

The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

The proper way to report the recharacterization and earnings which is to enter the 2019 IRA contribution in the IRA contribution interview section and then say yes to "Did you switch from a Roth to a Traditional IRA - recharacterize".

The amount The amount of the original Roth contribution must be entered - not any earnings or losses.

Then TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharactorized.

There is no tax or penalty on the before-tax earnings since the earning were simply switched into the recharactorized account.

That is the only way to prepare and attach the proper explanation statement for a code R 1099-R.

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.

Since the after-tax Roth contribution is now a Traditional IRA contribution it can be either a before-tax deduction if your MAGI allows a deduction which might result in an additional 2019 refund, or it will be an after-tax contribution reported on a 8606 form (line 1 & 14) as a "basis" in the Traditional IRA that will reduce the tax of future distributions.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
siwadon2000
Level 2

Confused about IRA and 1099R

Thank you so much.  Turbotax also said that 2019 amend.    I have 2019 8606 form.  We just requested tax return pdf in 2019 from turbotax  and look up for 2019 8606 form.    It was said 6000$. 

macuser_22
Level 15

Confused about IRA and 1099R

Then is is simply entering any new 2020 contributions and entering the 1099-R and entering the prior years basis from the 2019 8606.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
siwadon2000
Level 2

Confused about IRA and 1099R

Thank you very much.  I’ll do it.   

siwadon2000
Level 2

Confused about IRA and 1099R

And on income tab,   It’s still 17,100$ on overall.  Is not it supposed to be 0$.  I think it’s because box 2b is 17,100$ for that 1099R.    

macuser_22
Level 15

Confused about IRA and 1099R

The taxable amount is calculated on a new 8606 form lines 6-15 or the "Taxable IRA Distributions Worksheet" .    That does not change your 1099-R.    The final tax will be on  the 1040 form line 4b if any.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
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