Nondeductible Contributions to IRA with Roth Conversion

[Balance87]

I had filed my taxes in Mar of 2022 for the tax year of 2021

In April of 2022, I contributed 12,000 for my self into a traditional IRA with a roth IRA conversion.  6,000 for 2021 and 6,000 for 2022 before the deadline of April 15.  I received a 1099R for 12,000 that was withdrawn from the tradtional.  Obviously this was a nondeductible contribution.  I did not file a form 8606 for 2021 because I had already filed my taxes.  How do I set up my turbotax this year so that I am not taxed on the 12,000??  Do I need to mail a 2021 form 8606 for the first 6,000 and then submit form 8606 with my tax return for 2022?  

[DeDuck]

From what I have seen, TT seems to treat the Roth conversion as a taxable withdrawal and then offset it with an IRA deduction.  That seems backwards to me as well ... like you I would think that it should be a non-deductible contribution to the traditional IRA followed by a Roth conversion withdrawal of the traditional IRA balance that had an offsetting tax basis because of the non-deductible contribution. 

I would like to hear from a TurboTax employee or tax CPA explaining how it should work and why. 

[ThomasM125]

You are correct. You first enter a non-deductible IRA contribution to a traditional IRA account in TurboTax, then you enter the form 1099-R reporting the rollover of nondeductible contributions to the ROTH IRA. IF done properly, there will be no tax on the rollover and no deduction for contributions to an IRA. 

Key things to look for in TurboTax is to make sure you designate the contributions to the traditional IRA account as non-deductible. Also, you will be asked about your basis (non-deductible contributions) in IRA accounts at end of the previous year and the value at end of the current year, you need to make sure you answer those questions properly. Also, when you enter the Form 1099-R, you need to indicate that you did a combination of rolling over, converting, or cashing out the money, and then enter the amount converted to a ROTH IRA account. Here are some screen shots:

@DeDuck 

[DeDuck]

@ThomasM125:  Thanks, this is excellent information. 

It leads to a bit of product feedback. Successfully getting to the correct result appears to depend on entering the IRA contribution BEFORE entering the 1099-R information. However, TurboTax strongly leads the user to do the opposite, since it asks for all the income information first, while the IRA contribution entries are near the bottom of the deductions and credits section. This is certainly not an uncommon scenario, so in the retirement income (1099-R) section, TT should tell the user that if they made a nondeductible contribution that year and converted it to Roth, they should go enter the traditional contribution and basis information first, before entering the 1099-R data. Hopefully you can communicate this to the product team more successfully than a mere user is able to do.