1099r for BOTH 2019 and 2020 contributions triggers tax

[JulieAblesChapin]

Changing the $14,000 to $7,000 alleviates the tax entirely (as it should).   I can't be the only one who made a contribution to my nondeductible for a backdoor conversion to Roth in early 2020 for BOTH calendar year 2019 AND 2020? Unfortunately for me, I made both contributions in early 2020 so the 1099r was generated for both in the same calendar year and I cannot figure out how I handle that in TT without creating a $400 tax on the dollars when combined. 

[DanaB27]

First, if you haven't included the nondeductible contribution on your 2019 tax return then you will have to amend your 2019  tax return because the nondeductible contribution has to be reported on Form 8606. Please see How do I amend a 2019 return in TurboTax? You will need to enter the the nondeductible contribution in your 2019 tax return by following similar steps as below (only the contribution part).

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 $ 7,000 (on your 2019 and 2020 tax return)
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” for your 2020 tax return (this will be "no" for 2019 assuming you didn't have any other previous nondeductible contributions prior to 2019)
10. If you had a basis in the Traditional IRA before then enter the amount (for your 2020 tax return you will enter the $7,000 basis from your 2019 contribution assuming you did not have other nondeductible contributions prior to 2019).
11. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount.

To enter the 1099-R distribution/conversion ($14,000): 

1. Click "Personal Income" on the top
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 of $14,000 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?"
12. Answer the questions about the basis

[JulieAblesChapin]

Thanks.  I had figured I needed to amend the 2019 return to add the 8606 and your instructions were helpful in doing that.  But, even splitting the 1099r into two separate transactions, I STILL show a taxable amount of over $3000 when I view the preview.  This ONLY happens when I add the second $7K in or when I put the pull the $14K in by downloading the 1099r.  I still need a fix for how to enter separate transactions so that TT recognizes them as a 2019 and 2020 contribution in my 2020 tax filing.  Help?!  I've been trying to nail this for three days  UGH!

[JulieAblesChapin]

On your Step 9 of the 1099r portion, "I did a combination..." I only get taken to a screen telling me to go back and split the entries so they equal the full amount of the 1099r, which I did.  But, as soon as I add the second 1099r amount in, my taxes go up, again. I went through all the basis questions fine.  

[macuser_22]

If this is a simple Traditional IRA conversion done in 2020 with a Traditional IRA that had a non-deductible "basis" of a 2020 non-deductible contribution and a 2019 non-deductible contribution then you did NOT do "a combination" of things, you did one thing - converted the Traditional IRA to a Roth.

There seems to be a lot of confusion here.

Below is the step-by-step procedure for a "backdoor Roth".

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" tax free.

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. If existing IRA's contain any before-tax money or earnings then it will be partly taxable.
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.

First you must enter your Traditional IRA contributions (if there were 2020 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 recharactorazition.

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 2020.     (Usually zero unless you also made a 2019 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2020 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.

[If you had any other Traditional IRA at the end of 2020, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

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.

Also see this TurboTax FAQ:
https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion

[JulieAblesChapin]

Thanks.  I followed all these steps correctly.  I make sure my traditional is always $0 at year end.  (I've also amended my 2019 in TT to include the 8606 that was missing.)   My 1099r shows $14000.  I have them listed now as two separate $7000 1099r's, as listed in your step 9.  But, that did not help to alleviate the tax trigger.  When I fill out a paper version of the 8606 for 2019, and for 2020, I get the '0' tax liability.  But, for some reason in the TT application, I cannot.  There is something in the SW on how this is done I am not seeing.  Any help would be appreciated.  

[fanfare]

If you are using TurboTax Online and you didn't pay,

switch to to Turbotax CD/download on your PC.

If you did pay, contact TurboTax Support to get switched.

make sure your worksheets show a current basis of $14,000 in your IRAs and it will work.

[macuser_22]

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@JulieAblesChapin wrote:

Thanks.  I followed all these steps correctly.  I make sure my traditional is always $0 at year end.  (I've also amended my 2019 in TT to include the 8606 that was missing.)   My 1099r shows $14000.  I have them listed now as two separate $7000 1099r's, as listed in your step 9.  But, that did not help to alleviate the tax trigger.  When I fill out a paper version of the 8606 for 2019, and for 2020, I get the '0' tax liability.  But, for some reason in the TT application, I cannot.  There is something in the SW on how this is done I am not seeing.  Any help would be appreciated.  

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What is on line 3 & 5 on your 2020 8606?

[JulieAblesChapin]

OK, so I found my error.  In reading the instructions for basis, I assumed TT was adding in the basis for this years contribution, since you enter that earlier on, but in fact you have to add that into the basis yourself when you do the calculation.  Once I added this years basis into the balance, I got the 0 tax liability.  

[Yakman]

Appreciate the advice in this thread, I am in a similar situation to the original author except with an added complication and would welcome any insights.  At the end of 2020 I had a balance in a Traditional IRA account and this generated an increase in taxes due.  I am considering all options and wanted to know how I can reverse the backdoor conversion to Roth and treat my contributions as non deductible IRA contributions for 2019 and 2020 (both made in 2020).  I understand I can do this without the 6% penalty for 2020 (if completed by 5/17/21).  For 2019, will the penalty be 6% or 12%?  If I choose to do this in TT, what are the steps? thanks

[macuser_22]

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@Yakman wrote:

Appreciate the advice in this thread, I am in a similar situation to the original author except with an added complication and would welcome any insights.  At the end of 2020 I had a balance in a Traditional IRA account and this generated an increase in taxes due.  I am considering all options and wanted to know how I can reverse the backdoor conversion to Roth and treat my contributions as non deductible IRA contributions for 2019 and 2020 (both made in 2020).  I understand I can do this without the 6% penalty for 2020 (if completed by 5/17/21).  For 2019, will the penalty be 6% or 12%?  If I choose to do this in TT, what are the steps? thanks

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If you already did a  conversion for a Traditional IRS to a Roth then the Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the possibility of un-doing (recharacterizing) a conversion for tax years 2018-2025.   Once converted it cannot be un-done any more.