How do I enter a backdoor Roth IRA conversion?--Updated Instructions Please

[anonymous2]

I've been using this guide 
https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/enter-backdoor-roth-...

for the last few years.

But this year TurboTax 2022(Desktop/Windows) has different set of interview questions and I'm having trouble following the guide. 

Are there perchance updated tutorial available anywhere? 

thank you

[DanaB27 · Accepted solution]

The current guide is correct but if you have a prior year basis to enter then please see the instructions below. If you have any further questions about a specific screen please let us know and we will be happy to assist you.

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. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
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 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?" if you had any nondeductible contributions in prior years.
12. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[anonymous2]

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 Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
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).

I dont have form 8606. I have also dont have any Traditional IRAs that I track. 

Are the above question to be expected or only if they apply to me. 

Also , the guide that I've mentioned prior talked about checking the actual forms like so:

To check the results of your backdoor Roth IRA conversion, see your Form 1040:

1. Select Forms from the menu
2. Select Form 1040 from the menu
3. Use the scroll bar to find:
   • Line 4a IRA Distributions. Your backdoor Roth IRA amount should be listed
   • Line 4b Taxable amount should be zero, unless you had earnings between the time you contributed to your Traditional IRA and the time you converted it to a Roth IRA
4. Select Schedule 1 from the menu
5. Line 20 IRA deduction should be blank
   

Does this still needs to be done? Seems like there are differences in guides but old one is still online.

thank you

[DawnC]

Yes, those questions are to be expected.   If you did not have a basis or track any IRAs, you won't have an amount on Line 14 Form 8606 from last year, but you should see the form this year.

The current guide, at the link you gave above and linked here, has all of the steps to enter the conversion.   Plus, it has those additional steps (to ensure you entered everything correctly) you listed above.   You don't have to do those steps, but you should so you are sure you entered it correctly.    And you are probably viewing older answers in the Community or have one saved, but the most current steps are in the FAQ below.  And you can search for backdoor roth in TurboTax and be directed to the same, current article at any time.  

How to enter a Backdoor Roth in TurboTax

[anonymous2]

so following the above instructions I get

1. Federal taxes-> Retirement and investments->Traditional and Roth IRA contributions->Update

Traditional and Roth IRA. I check traditional IRA box.

Is this repayment->NO

Tell us how much you contributed  - > Your total IRA contributions ->$xxx

Did you change your mind -> NO

Any excess contributions -> NO

Here the screens diverge from what's in the tutorial.

I get 

Any non-deductible contributions to your IRA?

()Yes, I've made and tracked nondeductible

(*) No I didnt make or track on deductible contributions

Tell us value of your Trad IRAs as of Dec31 2022->0

Income Too high to deduct an IRA contribution.

Your IRA deduction 0

Brings me to federal taxes deductions screen.

[AnnetteB6]

The current guide is correct.  

If you read the information closely in step 10 of the section where you are entering the Traditional IRA non-deductible contribution it states that you may not see the screen shown in the guide that asks if you want to make the contribution non-deductible.  

In the case where your income will not allow any deductible contribution, the default is that all of the contribution will be non-deductible, and therefore you do not need to choose to make it non-deductible because there is no other option.  So some taxpayers going through this section will see the additional question while others will not.

@anonymous2 

[anonymous2]

thank you for this. makes more sense now that this paragraph has been explained to me.

Also the guide says to check Schedule1 in 'Forms' menu. But I don't see that form available on the list. 

[DanaB27 · Accepted solution]

If you don't have Schedule 1 available then that means you don't have any entries on Schedule 1 (line 20 IRA deduction will be blank). Therefore, you successfully made the traditional IRA nondeductible.

@anonymous2 

[KellyA-confused consumer]

Feedback on the process of entering the back door Roth conversion 

IRA contribution 

The process for entering a backdoor Roth can be so much simpler. We are not CPA's and the software is for consumers.  The help or "learn more" articles within the desktop software when entering the backdoor conversion give even harder to understand explanations and content. Why can't the program be more worded toward the consumer than the tax Pro? If we were tax pros we wouldn't necessarily need consumer edition software... I just feel like the content could be better worded for the lame man than the tax pro. No need to be stuck in a loop for ever looking up what this or that means when trying to input the info correctly. If this is for the consumer to have an easier filing process then help us out. Some of us don't have a simple tax return with just a couple of tax forms and done. And some of us don't want to have to pay all the extra money for a tax pro to use TurboTax and then charge us countless dollars when we could do it ourselves.  As these laws change and and continue in one direction or another, there is one thing we want to count on. That is TurboTax making the who process for every customer easier. We will still buy the upgrades and have to pay for a non simple tax return. But what about the older customers? What about our elders that are trying to still hang in their for another year? Don't you want them to feel adequate as well? Not like they just don't have it anymore or that they simply can't do it? From a consumer point of view. It doesn't have to be that hard.

One instance is why are we checking taxable amount not determined if we have a taxable amount listed in 2A? The IRA/SEP/Simple Box is checked 

Or What did you do with the money from this payer

Person moved money to another retirement account ( or returned it to the same retirement account)

Choose which of the following applies: 

Person rolled over all of this money to another traditional ira or other retirement account (or returned it to the same account)

Person did a combination of rolling over, converting, or cashing out the money

The process for doing a backdoor Roth conversion could be made simpler. Since TurboTax offers consumer rather than financial professional software, the help author could word the content more clearly towards individuals instead of tax pros managing complex returns. Also, many users do not have a "simple" return filed with only few forms complete and making use of a Pro can be costly. Regardless, TurboTax should have focus to provide all its consumers – even longtime older individuals – an easier experience throughout filing and not allow it to become such a chore or burden. We will still upgrade the software due to the types of income or forms we have. But we would also do this a lot more willingly if we understood more instead of feeling like we got ourselves into a mess or that we shouldn't be doing this at all. I don't want to pay more for something I am already having a hard time understanding. Much less pay more for something when I don't understand why it is needed or the process that it takes to make this expense happen. Your reaching over us when you can reach to us. Just saying

[jeff B1]

I think I'm following these instructions as closely as possible, but it's still treating my distributions as mostly taxable. However, I noticed that it seems to depend on what I enter for the current value of our Traditional IRA accounts as of 12/31/22. I was struggling with the entries for my conversion, so I tried it for my wife's, and noticed that the tax due amounts did not update until I entered the IRA value. When I have the actual values entered, nearly all of the distribution amounts show as taxable when I check lines 4a and 4b. But just to see what would happen, I entered $1,000 for our account values, and only a few hundred dollars out of $19,000 was shown as taxable on 4b.

Why would this make a difference? I'm trying to get this straight because I think my initial problem was that our 1099-Rs have the 7 code in box 7, rather than a 2. We are under 59-1/2 and TurboTax was telling me that I should check with our IRA custodian because it's very unusual to have the 7 code if we're under 59-1/2. So I've been using a 2 in my entries in TurboTax.

Part of this total was 2021 contributions made in early 2022 ($6K and $7K) and another $6K made in 2022 for 2022. I did not include the 2021 contributions in last year's taxes but I did update our basis amounts and will file the 8606 forms. So I think I have all these entries correct according to the guide.

[AnnetteB6]

The taxable amount of your Traditional IRA to Roth IRA conversion is being affected by the 'pro rata rule'.

When you take a distribution from a Traditional IRA (as you did when you converted the your Traditional IRA contributions to the Roth IRA) and it is reported on your tax return for the year of the distribution (2022), the year-end balance of all Traditional IRA accounts must be considered regardless of where the accounts are maintained (same broker or somewhere else).

The pro-rata rule with regard to distributions essentially means that every distribution from a Traditional IRA will be proportionally made up of pre-tax and after-tax money if the Traditional IRA account(s) is not 100% after-tax (non-deductible) money.  So, if your other Traditional IRA account(s) is proportionally high on the pre-tax side, then more of the amount that was converted to the Roth will be taxed.  Mathematically, the conversion amount is coming out of your total Traditional IRAs as a whole rather than the specific Traditional IRA account that may have only existed for the purpose of the back door Roth conversion.

If your only Traditional IRA account had been the one that was subsequently converted to the Roth IRA, then everything would have worked as planned, with a non-taxable event on your return.

The distribution codes on your Form 1099-R is not a factor in the calculation.  

Take a look at the following discussion which may further explain the situation:  

IRA Conversion to Roth & Pro-Rata Tax Obligation

@jeff B1 

[jeff B1]

@AnnetteB6 Well thank you very much for the explanation. I was not aware of this at all, unfortunately.

And yes, it doesn't change anything using the 7 code for box 7, to reflect our actual 1099-Rs. But is there any other reason to look into whether that's actually correct? TurboTax seems convinced that it shouldn't be a 7.

[AnnetteB6]

According to the Form 1099-R instructions, code 7 would not be correct if you are under 59 1/2 years in age.  But, entering the Form 1099-R as you received it with the code 7 should not cause any issues in your tax return.  

Code 7 can be used when no other code applies.  Code 2 would normally have been used due to your age, but the custodian would have also had to know that the distribution was going to be a Roth IRA conversion.

It would probably not be worth the effort to request a corrected Form 1099-R from the account custodian.

@jeff B1 

[edietrich120]

Hello @DanaB27 @AnnetteB6 

I have tried to go through this process several times but there is still something not working for me. I contributed $6,000 to a traditional IRA with all post-tax money and did the conversion to a Roth IRA, however when following the steps outlined in this thread I'm still encountering the software considering the $6,317 (amount on my 1099-R) that was eventually converted as other taxable income when I've already paid income taxes on these funds. I do not have any basis points from previous years and have gone through all the steps given but can't seem to figure out why it's still being included in my income. Appreciate the help in advance!

Edit: I think I found the issue and wondering if there is a way to correct it. I did my conversion on 1/3/23 instead of doing it in 2022 (first year doing this, so this is my mistake as it seems you're supposed to do the conversion in the year you make the contribution). As such, this gave the IRA a value at the end 12/31/2022 which is being used in the form 8606 calculation which ends up making about half the $6,000 post-tax contribution that was distributed taxable. I'm not sure if there is anything to do here or if I just have to accept the losses, but if there's a way to not pay income tax on money I already paid income tax on, that would be great! Especially as it's the difference between paying additional taxes vs getting a refund.

[jeff B1]

Something doesn't sound right. If you did the conversion on 1/3/23, why did you get a 1099-R for 2022? I'm thinking the conversion/distribution would go on your 2023 tax return, but the contribution would go on 2022's, so you'll have a basis of $6,000, and a Trad IRA balance of $6,317 as of 12/31/2022 when you do your taxes next year. But if you got a 1099-R for 2022 then it seems like something else is off.