2020/2021 nondeductible IRA contributions double counted?

[dsyhome0510]

I made two nondeductible contributions to traditional IRA 2021 and later converted to Roth RA , here is timeline

1st contribution: $7000 on 05/10/2021, converted 05/17/2021, for 2020 (before tax deadline 05/17/2021, but did not file Form 8606)

2nd contribution $7000 0n 06/08/2021, converted 08/14/2021, for 2021

When I fill up on TT, I went through two IRA explanation statements, and finally show my 2021 contribution was $14000, TT told me over contributed.

Apparently the portion for 2020 was counted to 2021, but how should I correct it?  

Greatly appreciate anyone's help. Thanks 

[DanaB27]

You will enter the contribution for 2020 on your 2020 tax return and the contribution for 2021 on your 2021 tax return.

When you enter the nondeductible contribution on your 2020 return TurboTax will create Form 8606 and you will have a basis on line 14 to carry over to 2021. You will enter the basis when TurboTax asks about your basis for 2020 and prior years (steps 9 and 10 when you enter your 2021 nondeductible contribution or steps 11 and 12 when you enter your Form 1099-R).

Please follow the steps below.

On your 2020 tax return 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. 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).

On your 2021 tax return 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
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” since you had nondeductible contributions before this tax year
10. Enter your $7,000 basis in the Traditional IRA 
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 distribution/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?"
12. Answer the questions about the basis from line 14 of your 2020 Form 8606 ($7,000) and the value of all traditional, SEP, and SIMPLE IRAs

[dsyhome0510]

Thank you for detailed instruction. 

I have two questions on the proposed process:

1) Do I need to relaunch TT2020 to complete the distribution revision?

2) After  redo the 2020 distribution part in TT2020, do I need submit and transfer information to TT2021? Otherwise the changes are not reported to IRS and and not collected by TT2021 for correct 2021 distribution count?

thanks 

[DanaB27]

1. No, the distribution/conversion happened in 2021 and therefore belongs on your 2021 return. You will only enter the nondeductible contribution for 2020 on your 2020 tax return.

2. You will only need to enter the $7,000 basis from your 2020 Form 8606 line 14 when you go through your 2021 tax return interview. You can either enter it when you enter the contribution for 2021 (steps 9 and 10) or when you enter Form 1099-R for the conversion (steps 11 and 12).

@dsyhome0510