IRA Conversion

[usmalum]

I contributed to a non-deductible Traditional IRA in 2018 and 2019.  I converted both of these amounts in 2019 to a Roth IRA.  Turbo Tax is showing a tax for excessive IRA contributions. 

I don't think that this correct.  Please help.  

[macuser_22]

Excess contribution to what?   The Roth or Traditional IRA?

Is the tax on a 5329 form - what line?

Dis you enter the Traditional IRA contribution in the IRA contribution section for 2018 and file the required 2018 8606 form for a non-deducible contribution?

Did you also enter do the same thing for the 2019 non-deducible contribution.

[Critter-3]

Doing a "backdoor Roth" consists of two parts in the TT program ...

1) making and reporting a non deductible Traditional IRA contribution and

2) converting the Traditional IRA to a Roth IRA. 

#1 & #2 might be reported in different tax years.

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".

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.
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.

[Critter-3]

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

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 2019.     (Usually zero unless you also made a 2018 or earlier non-deductible contribution).

Enter the 2019 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.  Enter the 2019 non-deductible contribution here.

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.

[macuser_22]

@Critter-3 - The posters question was about excess contributions penalty which is why I asked for clarification.

There are two ways to get "excess contribution":

1) Make a IRA contribution more then the amount of taxable compensation for the tax year, or

2) Mistakenly enter the Roth conversion as a new Roth contribution instead of a 1099-R and a conversion.

[Critter-3]

Chances are good they entered them as new contributions (99.9%) so that is why I posted the way to enter the conversion so they can get it right.  😉