How to file backdoor Roth IRA conversion in TurboTax

[chiouc]

I am a 70 year old retiree and did a backdoor Roth IRA conversion in 2024. I followed the two steps instructions  for entering a backdoor Roth IRA conversion listed in TurboTax Help.

On Step 1 item 8: "On the Tell Us How Much You Contributed screen, enter the amount..." I entered $7000 for my total traditional IRA contributions.

On Step 1 item 9: I answered No.

After answering the questions on the following screens, TurboTax said "Your IRA Contribution Isn't Permitted" because "I am not permitted to contribute more than the amount of my earned income". "Your traditional IRA contributions $7,000 is more than your earned income of zero.

Then TurboTax said I have a Penalty and I will owe a 6% penalty each year...

What did I do wrong? I am a retiree and I don't have earned income. Why do I need to pay penalty for a backdoor Roth IRA conversion?

[ThomasM125]

You can't do a backdoor Roth IRA conversion if you don't have earned income. This is because the first step in the process is to make a non-deductible contribution to a traditional IRA, and you can't contribute to an IRA, deductible or non-deductible, unless you have earned income.

You can do a Roth IRA conversion without earned income, but that involves moving money that was contributed to a traditional IRA in years when you had earned income to a Roth IRA. It is not a backdoor IRA conversion though.

You need to withdraw the excess contribution you made before the due date of your 2024 tax return to avoid the penalty. You can report the earnings on your 2024 tax return or wait until you get the Form 1099-R in 2025 and amend your 2024 tax return to include the income earned on the money you withdrew. If you choose to include the income on your 2024 return, follow these steps to enter a substitute Form 1099-R:

To enter a substitute form 1099-R in Turbo Tax Desktop follow these instructions:

1. Find the Retirement Plans and Social Security menu option in the Wages and Income section of TurboTax
2. Start or Update IRA, 401(k), Pension Plan Withdrawals (1099-R)
3. Choose Add (Another) 1099-R
4. Choose I'll type it in myself
5. On the screen that says Tell Us Which 1099-R You Have choose I need to prepare a Substitute 1099-R

To enter a substitute form 1099-R in Turbo Tax Online follow these instructions:

1. Find the Retirement Plans and Social Security menu option in the Wages and Income section of TurboTax
2. Start or Update IRA, 401(k), Pension Plan Withdrawals (1099-R)
3. Choose Add (Another) 1099-R
4. Choose I'll type it in myself
5. Choose the source of your 1099-R form
6. Enter your pension income into the Form 1099-R entry screens
7. When you come to the screen that says Do any of these situations apply to you? Check the box that says I need to file a substitute 1099-R and follow the instructions

To enter a refund of excess IRA contributions received in 2025 for 2024 contributions on your 2024 return, follow these steps when you enter the substitute Form 1099-R:

1. Enter the distribution amount in box 1 of the substitute 1099-R
2. Enter the earnings in box 2(a)
3. Enter code "8" and "T"  in box 7 

[Edited 2/3/25 at 3:36 PM PST]

@baldietax

[baldietax]

the problem is you can't make the non-deductible IRA contribution to begin with, above the amount of your earned income, which as you agree is zero; so then you can't move it thru the backdoor conversion to Roth if it was an excess contribution to the IRA.  For every year you don't fix the IRA issue you get a 6% penalty.

I don't know all the mechanics of how to resolve this, but wanted to reply that you definitely have an issue to resolve before filing, you may even get delayed and need extension to October.  The good news - I think - is if this all happened in 2024, you may be able to avoid the penalty(ies) if you undo all this before the tax filing deadline, and you may just have some tax due on earnings that happened during the whole process.  Hopefully you didn't do the same thing for 2025 yet.

I don't know all the mechanics unfortunately, you may need to recharacterize the conversion back to the IRA to unwind the 1099-R with the custodian/broker, then withdraw it from the IRA.  Hopefully a CPA/Expert will respond here to provide guidance.  Try searching on here for various threads on excess IRA or Roth contributions/conversions but every situation could be a little different, also you should talk to your broker.

You may also want to search/post this over in the 'Retirement' forum which is more focused on these type issues.

Maybe @dmertz @BillM223 @VolvoGirl can help further

[baldietax]

ha ok ignore my babbling, an expert picked it up