Hello,
I have some money is my Traditional IRA. In year 2019, I contributed $7k of after tax money to my Traditional IRA and did a back door conversion to a Roth IRA. Turbo tax seems to think that part of this 7K after tax dollar is income and need to pay tax on it. Looks like I got taxed twice. Is this bug in Turbo Tax?
For example:
Let say my IRA has $100k, I added $7k after tax dollar to it and converted on the $7k to Roth. 7k/100k = .07. 7k - .07 X 7k = $6510. Turbo tax is counting $6510 as income that require tax to be paid. effectively I am paying tax twice. Please let me know if this is the way is should be or is a bug in Turbo Tax.
thank you!
Based on the description in your question, it is being reported the way it should be.
Converting a Traditional IRA contribution to a Roth IRA is only tax-free if the Traditional IRA has only after-tax contributions in the account. Otherwise, the distribution that is taken from the Traditional IRA and converted to the Roth IRA will be partly taxable based on the amount of basis (non-taxable) in the account and the tax-deferred money in the account. It is not possible to take a distribution from a Traditional IRA and specify that only the non-taxable portion be used.